CGT on Employee Share Save
Discussion
Now that the annual limit has been reduced on CGT and is due to drop again next year this means I may now need to start declaring my profits as to date I have always been under the threshold.
We are offered shares on a 3 year plan at a discounted price from when we start saving. HMRC states that you should use 'Market Value' when working out your gains so can someone help me with the following situation:
In 2020 we were offered shares at a discounted price of 5.11 per share, the market value on the day I applied and was accepted was 6.52 per share.
The saving/contract start date was 1st Aug 2020 and the share price on that date was 7.50 per share.
The maturity date isn't until 1st Aug this year but as it sits this morning they are worth 8.55 per share.
Lets Assume I could sell them today for 8.55 per share what price do I use as my starting point to work out my gain, I think it's the 'Market Value' on the day I own the shares which will be in Aug this year as up until that point I don't actually own the shares, I am only saving to potentially buy them as we can take our money back without buying them up to that point.
In the above scenario I have technically purchased them at 5.11 and sold them at 8.55 so a 3.44 profit to me personally but going off HMRC's guidance i'm not clear on what starting price I use for working out my gain.
Does anyone have any definitive guidance on this?
We are offered shares on a 3 year plan at a discounted price from when we start saving. HMRC states that you should use 'Market Value' when working out your gains so can someone help me with the following situation:
In 2020 we were offered shares at a discounted price of 5.11 per share, the market value on the day I applied and was accepted was 6.52 per share.
The saving/contract start date was 1st Aug 2020 and the share price on that date was 7.50 per share.
The maturity date isn't until 1st Aug this year but as it sits this morning they are worth 8.55 per share.
Lets Assume I could sell them today for 8.55 per share what price do I use as my starting point to work out my gain, I think it's the 'Market Value' on the day I own the shares which will be in Aug this year as up until that point I don't actually own the shares, I am only saving to potentially buy them as we can take our money back without buying them up to that point.
In the above scenario I have technically purchased them at 5.11 and sold them at 8.55 so a 3.44 profit to me personally but going off HMRC's guidance i'm not clear on what starting price I use for working out my gain.
Does anyone have any definitive guidance on this?
Dimebars said:
The scheme will specify an "option price" - £5.11 in this case
Surely HMRC take this as the starting value, and the difference between £8.55 as your gain
Yes, that's been my understanding and a couple of minutes Googling produced this:Surely HMRC take this as the starting value, and the difference between £8.55 as your gain
https://www.gov.uk/government/publications/employe...
CGT on 8.55 - 5.11 would make no sense at all. If there is a CG then it will be on 8.55 - 6.52. Disposing of the 6.52 - 5.11 is a question of income tax, not CGT and whether any tax or NI is payable on this difference depends on the nature of the scheme and circumstances of the transfer of the shares to your ownership.
Kirkmoly said:
CGT on 8.55 - 5.11 would make no sense at all. If there is a CG then it will be on 8.55 - 6.52. Disposing of the 6.52 - 5.11 is a question of income tax, not CGT and whether any tax or NI is payable on this difference depends on the nature of the scheme and circumstances of the transfer of the shares to your ownership.
£5.11 would make sense as that's what he's paid for each share and £8.55 is what he sold them for.DaveH23 said:
But HMRC dictate to use the 'Market Price' 5.11 was a discounted price for employee's based on the share price to the market being 6.52.
First line of the HMRC webpage I linked to above "The capital gains cost of your shares is usually what you pay for them when you exercise your option."This can be complex and in particular the rules may vary depending on the details of the scheme. A good employer will understand these complexities and should be able to advise.
However and as a general rule:
However and as a general rule:
- If you were granted the shares at a discount to market value, then you are liable to income tax on the difference at the point you obtain the shares (this might be at purchase time for SAYE, vesting for RSUs, or exercise time for options)
- You then pay CGT when you sell the shares on the difference between market value (note, not necessarily the price you paid) at the point of acquisition and the point of sale
okgo said:
Does anyone know how the tax is dealt with with an ESPP? Our company has a typical one that offers 15% with a look back window but the shares are all bought from taxed income over a 6 month period. Do I pay CGT on the gain here?
As above : deckster said:
This can be complex and in particular the rules may vary depending on the details of the scheme. A good employer will understand these complexities and should be able to advise.
However and as a general rule:
In my case, it is exactly this (A US co with an ESPP scheme) - I pay income tax at the marginal rate on the difference between the discount and the actual price - i.e. income tax on a 15% discount in my case. However and as a general rule:
- If you were granted the shares at a discount to market value, then you are liable to income tax on the difference at the point you obtain the shares (this might be at purchase time for SAYE, vesting for RSUs, or exercise time for options)
- You then pay CGT when you sell the shares on the difference between market value (note, not necessarily the price you paid) at the point of acquisition and the point of sale
You would then pay CGT on any gain over and above the actual price when you eventually dispose of the shares.
okgo said:
Does anyone know how the tax is dealt with with an ESPP? Our company has a typical one that offers 15% with a look back window but the shares are all bought from taxed income over a 6 month period. Do I pay CGT on the gain here?
You will pay income tax and possibly employers NI on the difference between the discounted price and the market value on the day they vest. They may well offer a sell to cover scheme and sell enough to cover your income tax liability and leave you with net shares which you can then do as you please. When you finally sell these shares you will be subject to CGT if you break the limits.
If you keep them you will need to keep track of them in a section 104 holding. Effectively an average worked out in Stirling.
When you sell you work out the gain against the average !
(There are rules about same day matching, 30 days and against the 104 holding) so it’s very much worth doing your tax home work.
Up until they started dropping the CGT limit the chances were that you didn’t need to worry about unless you had a lot or the price rose a lot after you acquired them.
There’s also a reporting threshold even if you don’t owe CGT, if you dispose of 4 x the CGT allowance limit which was £48k. It sure if that has now moved too though.
You should still make decent money though, I reckoned around at least 7% after tax assuming the stock price didn’t go up. Well worth it.
cml24 said:
I can transfer mine unto a s&s isa. Removes some of the potential pain. I thought this option would be open to everyone?
pretty sure you have to do with within 90d of the option being granted (or the maturity date).Bung them in the ISA for the year if you have limit available.
okgo said:
Does anyone know how the tax is dealt with with an ESPP? Our company has a typical one that offers 15% with a look back window but the shares are all bought from taxed income over a 6 month period. Do I pay CGT on the gain here?
Open up an account with revolut, Starling etc so when you do sell you can do a wire transfer in USD.That way you don't get stung by the brokerage or your bank on a crap exchange rate.
I pay for a premium revolut account because the cost is saving on the transaction are lower than the annual fee
On our ESPP and RSU, they auto sell to cover the tax, we don't get a choice, this was only introduced a couple or years ago.
When we had to pay via deduction we could ( in the happy days) have commission cheques wiped out and have to send the balance owing for the difference still.
Edited by deja.vu on Thursday 18th May 08:20
supersport said:
okgo said:
Does anyone know how the tax is dealt with with an ESPP? Our company has a typical one that offers 15% with a look back window but the shares are all bought from taxed income over a 6 month period. Do I pay CGT on the gain here?
You will pay income tax and possibly employers NI on the difference between the discounted price and the market value on the day they vest. They may well offer a sell to cover scheme and sell enough to cover your income tax liability and leave you with net shares which you can then do as you please. When you finally sell these shares you will be subject to CGT if you break the limits.
If you keep them you will need to keep track of them in a section 104 holding. Effectively an average worked out in Stirling.
When you sell you work out the gain against the average !
(There are rules about same day matching, 30 days and against the 104 holding) so it’s very much worth doing your tax home work.
Up until they started dropping the CGT limit the chances were that you didn’t need to worry about unless you had a lot or the price rose a lot after you acquired them.
There’s also a reporting threshold even if you don’t owe CGT, if you dispose of 4 x the CGT allowance limit which was £48k. It sure if that has now moved too though.
You should still make decent money though, I reckoned around at least 7% after tax assuming the stock price didn’t go up. Well worth it.
As a result of being in the ESPP,
- never having sold any shares,
- leaving the employer 18 years ago,
- and the shares value increasing substantially,
R
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