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bigduckontax, Accountant
Category: Tax
Satisfied Customers: 10576
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If I were to receive investment for exercising company

Customer Question

If I were to receive investment for exercising company options to get shares and form an agreement with the investor. The agreement will define how the sale of the shares will distribute profits between myself and the investor. Can I pay only capital gains tax on the profits that I am entitled to if I attach the agreement on my Self-Assessment?
JA: What are the assets or property for this capital gain?
Customer: Its company shares
JA: Is there anything else the Accountant should know before I connect you? Rest assured that they'll be able to help you.
Customer: nop
Submitted: 8 days ago.
Category: Tax
Expert:  bigduckontax replied 8 days ago.

That would be the logical outcome. There would be no need to support the arrangement unless it were challenged by HMRC.

Customer: replied 7 days ago.
Do you think they would challenge it ? Or me attaching my agreement and obviously the funds being moved to the investor on liquidation of the shares is enough?
Expert:  bigduckontax replied 7 days ago.

I would suggest that it would be inadvisable to attract attention. Just make normal declarations unless challenged.

Customer: replied 7 days ago.
When you say normal declarations do you mean declare only the profits I made after I paid the investor without attaching the agreement?
Expert:  bigduckontax replied 7 days ago.

No, dividends do not reduce the CT liability.

Customer: replied 7 days ago.
Not sure I understand. What do you mean by CT liability?
Expert:  bigduckontax replied 7 days ago.

Dividends do not affect the Corporation Tax liability.

Customer: replied 7 days ago.
I am sorry but I am not sure I follow. I would be an individual selling shares and will need to pay Capital Gains on them. How is Corporation Tax connected?
Expert:  bigduckontax replied 7 days ago.

You do not seem to rasp the difference between tax returns and share sales.

Customer: replied 7 days ago.
Yep I am definitely learning about this process. I am trying to understand what I need to do upon selling these shares. In the scenario where I didn't form an agreement that provides another investor some of the profits from the sale of the shares I'd declare capital gains on all the profits of the shares on my self-assessment and be done with it. In this scenario where an investor helps me acquire the shares and then they are entitled to some of the profits as far as I understand I need to declare what profits I am left with and the investor will pay taxes on their profits themselves. I will have a legal agreement with them. So how would my self-assessment look like? Do I need to explain this? Do I attach the legal agreement? Is there anything other than self-assessment that I need to worry about? Sorry If I am misunderstanding this is all new to me
Expert:  bigduckontax replied 7 days ago.

There is no need to explain unless HMRC require disclosure.

Customer: replied 7 days ago.
Ok so let's say I give the investor 30% of the profits in the agreement. I sell the shares and the total is £100. £30 goes to the investor. So I'd declare £70 and pay 20% capital gains on that.
Expert:  bigduckontax replied 7 days ago.

Yes, but remember thatyou have an Annual Exempt Amount (AEA) of 12.3K to offset profits.

Customer: replied 7 days ago.
Thank you. Another question I have. So on exercising my options to buy the shares given they are NSOs which is an IRS thing I believe I am required to pay income tax. To calculate the income tax I'd look at the Fair market value price which would be the price of the last funding round given the company is private and use that to calculate the difference between strike price to exercise and total market value and declare income tax on that difference. So if I need to pay £40 to exercise 10 options and get 10 shares. Let's say the Fair market value is £10 per share that would give me a total of £100. Then I'd declare income tax on £60. Is that all correct?
Expert:  bigduckontax replied 7 days ago.

Sorry, I do not cover Cypriot taxation and must opt out.

Customer: replied 7 days ago.