Calling Financial / Tax Gurus

Calling Financial / Tax Gurus

Author
Discussion

boysey

Original Poster:

117 posts

220 months

Wednesday 25th July 2007
quotequote all
I'll try to make this short ...

I have some stock options for the US company I work for, today I decided to exercise some expecting them to send the proceeds via a cheque which I could in turn deposit into a dollar account. Essentially I have 2000 shares assigned to me at a buy price of $37ish and they are currently $60ish. Anyway, they offer a service to effectively buy and sell on the same day so essentially I don't have to find any money to fund the purchase, they just send me the difference.

Anyway, I have been planning this around my CGT but when I had completed the transaction they informaed me thatthe proceeds would be sent to my payroll department. Upon further investigation the intent is to push this through my salary as an additional income and tax me accordingly? So I am lost, I tried to explain I have done share save schemes before like this and the proceeds from the share sale becomes part of a capital gain, not income. The only difference in the past is i have 'exercised' my option, kept them for a short while, then sold.

So who's right and any ideas where I can find some backup information on this?

Thanks!

LeoSayer

7,312 posts

245 months

Thursday 26th July 2007
quotequote all
If they are qualified options (under UK tax law) then you can receive them free of income tax, but you still pay CGT when you sell.

There is a limit to how much you allowed to recieve qualified, I think it's £30,000 calculated by no of option * strike price.

If they aren't (ie. unqualified) then they are treated as income from your employer and taxed as such.


boysey

Original Poster:

117 posts

220 months

Thursday 26th July 2007
quotequote all
Thanks for that info ... looks like I need to do some more digging smile

M400 NBL

3,529 posts

213 months

Thursday 26th July 2007
quotequote all
Eric Mc is the resident tax expert on PH. Otherwise you could post on www.taxationweb.com.uk/forum where you are sure to find out.

Best of luck

boysey

Original Poster:

117 posts

220 months

Thursday 26th July 2007
quotequote all
Cheers guys!

Size Nine Elm

5,167 posts

285 months

Thursday 26th July 2007
quotequote all
If they are unqualified options, there may be a tax withholding through PAYE on exercise of the options. This can then be offset against the CGT payable when you sell.

Eric will be along soon...

Mx_Stu

810 posts

224 months

Friday 27th July 2007
quotequote all
Afternoon,

Starting point is that if they are US Stock Options it is highly likely that they are unapproved in the UK i.e. carrying no favourable tax treatment.

As they are Options you would have been granted the Option to buy the shares at the price at the date of the grant at some point in the future (subject to certain performance conditions). In this case it appears you were granted the Option to buy the shares for $37. With the price now being $60 you have made a gain which will be subject to PAYE/NIC (assuming they are readily convertible for cash) and this will therefore have to go through the payroll. As you will own the shares upon exercise of the Option this would be your base cost for CGT, however as you are selling on the same day then there will be no chargeable gain.

Stuart

boysey

Original Poster:

117 posts

220 months

Tuesday 31st July 2007
quotequote all
Stuart,

If I am following what you are saying ...

- If I buy/sell the same day, as I did, this is liable for Income Tax

- If I exercise my option, buy the shares at the agreed rate and then sell later this is then a capital gain?

Am I following your thought process? Funnilty enough I asked a couple of peeps and work (very tough to find someone who actually 'knows the answer' but they suggest the above was correct?

Cheers.

LeoSayer

7,312 posts

245 months

Tuesday 31st July 2007
quotequote all
Income tax is due on the difference between the exercise cost to you and the value of the shares on the day you exercise them.

Capital Gains tax applies to the difference between the value of the shares on the day you exercise them and the sale proceeds (ie no difference if you exercise and sell on the same day).