Shares, what can I do to stop capital gains tax being paid
Discussion
Morning all,
Well It looks like my company are being taken over, all the shares I have will have to be sold to them, this could amount to about 35k, I reckon I have paid about half that for them, and they have only been held for about 3 years.
I currently earn about 38k/year so that puts me in the 40% bracket.
Is there anything I can do to offsett the tax? 50% of these shares have not had the option exercised yet so that makes life difficult as well.
Your help is much appreciated.
Kevin
Well It looks like my company are being taken over, all the shares I have will have to be sold to them, this could amount to about 35k, I reckon I have paid about half that for them, and they have only been held for about 3 years.
I currently earn about 38k/year so that puts me in the 40% bracket.
Is there anything I can do to offsett the tax? 50% of these shares have not had the option exercised yet so that makes life difficult as well.
Your help is much appreciated.
Kevin
If you're married then transfer some shares to your wife before the deal is done so that you use up her allowance as well. You probably won't be able to do this with options though, unless you exercise them first.
The CGT bill may not be as big as you expect though, due to business assets taper relief....don't ask me to explain, you'll need an accountant for that. I would ask your company to stump up for an accountant as I guess that there will be other people in your situation.
The CGT bill may not be as big as you expect though, due to business assets taper relief....don't ask me to explain, you'll need an accountant for that. I would ask your company to stump up for an accountant as I guess that there will be other people in your situation.
www.hmrc.gov.uk/rates/cgt.htm
You have a CGT exempt amount of about £8k anyway, and you can deduct the price you paid for them. Then you get taper relief, which means 75% as you have held them for more than two years. At 40% tax it means you'll pay 10% tax on the balance I believe.
You have a CGT exempt amount of about £8k anyway, and you can deduct the price you paid for them. Then you get taper relief, which means 75% as you have held them for more than two years. At 40% tax it means you'll pay 10% tax on the balance I believe.
Thanks guys.
Being somewhat of a dimwit, I claculated out my holdings as this.
1300 shares bought @ £4 ea. held for over 2 years, possible 3 or more, I'm a little unsure.
1900 yet to exercise an option on, but bougt @ £4 ea
200 bought @£4 ea.
Meaning I have spent 14k on shares thus far, 1300 I own outright and have held for 2+ years.
1900+200 I have not yet exercised the options on, this is due to happen very soon, and is out of my control.
thus my total spend is as above 14k.
The value of the shares is in the order of 34k meaning 20k profit, If I deduct my tax allowance, then I still have 12k clear, this I take it will be @40% ????? I'm not sure about the taper relief workings....clueless would be one word...and any further help appreciated as this dips into the mortgage payoff and retirement funds somewhat.
TIA
Kevin
Being somewhat of a dimwit, I claculated out my holdings as this.
1300 shares bought @ £4 ea. held for over 2 years, possible 3 or more, I'm a little unsure.
1900 yet to exercise an option on, but bougt @ £4 ea
200 bought @£4 ea.
Meaning I have spent 14k on shares thus far, 1300 I own outright and have held for 2+ years.
1900+200 I have not yet exercised the options on, this is due to happen very soon, and is out of my control.
thus my total spend is as above 14k.
The value of the shares is in the order of 34k meaning 20k profit, If I deduct my tax allowance, then I still have 12k clear, this I take it will be @40% ????? I'm not sure about the taper relief workings....clueless would be one word...and any further help appreciated as this dips into the mortgage payoff and retirement funds somewhat.
TIA
Kevin
From what you seem to indicate, the gain on its own is not sufficient to take you into the 40% tax bracket. Unfortunately, that is not how the taxation of capital gains works. The gain is added onto your existing normal income received in the tax year. So that £12,000 will have to be added onto your salary and any other income between now and 5 April 2007.
One way to mitigate capital gains is to try and split your disposals into differemt tax years. In that way, the gain is split and your personal Capital Gains Allowance is triggered more than once.
That may not be an option open to you if you are being "forced" to sell all your shares and options in one go.
Also, with "share options", you have to be very careful about the time periods you have owned the options and the time period within which those options are exercised. The government are not that keen on option schemes as they are used by employers to grant "bonuses" to staff without having to pay PAYE tax and Class 1 National Insurance contributions. If options are exercised too early, you might find yourself suffering tax and NI on the amount, rather than a Capital Gains Tax liability. A CGT liability is much more preferable to suffering PAYE and NI.
Whether this particular scenario arises is also dependent on the actual option scheme. Some option schemes are "approved" by HMRC and some aren't. Non-approved schemes often arise when the company operating the scheme is non-UK based e.g. US or European.
One way to mitigate capital gains is to try and split your disposals into differemt tax years. In that way, the gain is split and your personal Capital Gains Allowance is triggered more than once.
That may not be an option open to you if you are being "forced" to sell all your shares and options in one go.
Also, with "share options", you have to be very careful about the time periods you have owned the options and the time period within which those options are exercised. The government are not that keen on option schemes as they are used by employers to grant "bonuses" to staff without having to pay PAYE tax and Class 1 National Insurance contributions. If options are exercised too early, you might find yourself suffering tax and NI on the amount, rather than a Capital Gains Tax liability. A CGT liability is much more preferable to suffering PAYE and NI.
Whether this particular scenario arises is also dependent on the actual option scheme. Some option schemes are "approved" by HMRC and some aren't. Non-approved schemes often arise when the company operating the scheme is non-UK based e.g. US or European.
Edited by Eric Mc on Tuesday 13th June 09:32
Thanks Eric,
This scheme has full government approval, the £250/month type, with full tax relief.
My uses are for cars/holidays/mortgage payoff and nest egg, all of which appear to be going south.
I am a 40% tax payer (just) without this being added, I've just recieved this morning a letter from the company telling me that June 26th is the cutoff date, which is a sod as I'm off to Le Mans tomorrow and probably won't have enough time when back to transfer anything into my wifes name, she only earns about 6k/yr....
Thanks
kevin
This scheme has full government approval, the £250/month type, with full tax relief.
My uses are for cars/holidays/mortgage payoff and nest egg, all of which appear to be going south.
I am a 40% tax payer (just) without this being added, I've just recieved this morning a letter from the company telling me that June 26th is the cutoff date, which is a sod as I'm off to Le Mans tomorrow and probably won't have enough time when back to transfer anything into my wifes name, she only earns about 6k/yr....
Thanks
kevin
Kevin, as I understand it with an approved option scheme, if you exercise the options less than 3 years after they are granted then you will be liable for Income tax on the difference between the option price and share price on the day of exercise. No CGT will be payable if you sell at the same time as you exercise.
If you exercise after 3 years then no Income tax is payable however when you sell the shares, CGT is payable on the difference (subject to threshold etc.
Get an accountant soon, there may be an opportunity to save some tax by taking some action now. £££ now could save you ££££ later. Some will offer a free initial consultation.
If you exercise after 3 years then no Income tax is payable however when you sell the shares, CGT is payable on the difference (subject to threshold etc.
Get an accountant soon, there may be an opportunity to save some tax by taking some action now. £££ now could save you ££££ later. Some will offer a free initial consultation.
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