Shares and share options
Discussion
Hi All,
I have been offered a package for a new job; the package includes a certain value of shares and share options (split 50/50 between the two). I can redeem the shares after 3 years and the share options 25% in year 1, 25% in year 2, 25% in yr 3 and 25% in year 4. I also get extra share options each year. I have no experience of shares or options at all and I have tried doing some reading, but given I will need to feedback to them tomorrow morning I could really do with some info!
Regarding the shares I can redeem in 3 years; does this mean I am being given a number of shares equal to the current value they say they will give, and that in 3 years I will be eligible to cash them in, so if each share is worth more in 3 years than now, I will have more actual value than the value I am being told now?
Is this cash from cashing in eligible to be taxed and NI if I cash in in 3 years?
How do share options work? Does it mean I have to actually buy the shares at a lower value than they are worth, and then you can cash them in and keep the difference?
I am pretty clueless about all this so any advice is most welcome!
I have been offered a package for a new job; the package includes a certain value of shares and share options (split 50/50 between the two). I can redeem the shares after 3 years and the share options 25% in year 1, 25% in year 2, 25% in yr 3 and 25% in year 4. I also get extra share options each year. I have no experience of shares or options at all and I have tried doing some reading, but given I will need to feedback to them tomorrow morning I could really do with some info!
Regarding the shares I can redeem in 3 years; does this mean I am being given a number of shares equal to the current value they say they will give, and that in 3 years I will be eligible to cash them in, so if each share is worth more in 3 years than now, I will have more actual value than the value I am being told now?
Is this cash from cashing in eligible to be taxed and NI if I cash in in 3 years?
How do share options work? Does it mean I have to actually buy the shares at a lower value than they are worth, and then you can cash them in and keep the difference?
I am pretty clueless about all this so any advice is most welcome!
A lot of questions and the subject is much too important for you to make an informed decision after one day, and listening to me and others on PH, but here are my thoughts FWIW.
IS the company listed? If not, how are the shares valued? You need to understand this.
All contracts will be different and you should have yours reviewed by an expert, but you are probably being given shares today, that you cannot sell for three years, by which time they should be worth more and/or listed on a market so that you can sell.
The options are usually granted at either nil, or x% below the current price. So yes, you could exercise the option, and buy the shares at each anniversary, at the agreed option price, then immediately (or after a time, depending on the terms of your contract) sell them and pocket the difference.
There should not be Income Tax or NI to pay, but you should familiarise yourself with Capital Gains Tax, and the benefits of contributing them to a pension or trust if the value and tax liability warrant it.
Hope that helps for starters.
IS the company listed? If not, how are the shares valued? You need to understand this.
All contracts will be different and you should have yours reviewed by an expert, but you are probably being given shares today, that you cannot sell for three years, by which time they should be worth more and/or listed on a market so that you can sell.
The options are usually granted at either nil, or x% below the current price. So yes, you could exercise the option, and buy the shares at each anniversary, at the agreed option price, then immediately (or after a time, depending on the terms of your contract) sell them and pocket the difference.
There should not be Income Tax or NI to pay, but you should familiarise yourself with Capital Gains Tax, and the benefits of contributing them to a pension or trust if the value and tax liability warrant it.
Hope that helps for starters.
Good advice above, but do double check the income tax/nic side of it. Only options issued under a tax-advantaged plan such as a CSOP have an exemption (and only if they are not issued at a discounted price), so if this is a non-tax advantaged plan you'd take a hit (but this is commonly funded out of proceeds if/when you exercise).
Like has been said, there are so many flavours of discretionary option plans that you'll unlikely to get everything you need from here.
Suggest checking whether there are performance conditions (there usually are) which have to be met before the awards vest - these are usually measured against TSR/EPS/share price movement and find out how much the awards are scaled back by if the conditions are not met. Consider how long you intend to be there because there is likely to be forfeiture of unvested awards if you leave.
Congratulations btw; nice perk to have
Like has been said, there are so many flavours of discretionary option plans that you'll unlikely to get everything you need from here.
Suggest checking whether there are performance conditions (there usually are) which have to be met before the awards vest - these are usually measured against TSR/EPS/share price movement and find out how much the awards are scaled back by if the conditions are not met. Consider how long you intend to be there because there is likely to be forfeiture of unvested awards if you leave.
Congratulations btw; nice perk to have
mjw0321 said:
1. Regarding the shares I can redeem in 3 years; does this mean I am being given a number of shares equal to the current value they say they will give, and that in 3 years I will be eligible to cash them in, so if each share is worth more in 3 years than now, I will have more actual value than the value I am being told now?
2. Is this cash from cashing in eligible to be taxed and NI if I cash in in 3 years?
3. How do share options work? Does it mean I have to actually buy the shares at a lower value than they are worth, and then you can cash them in and keep the difference?
1. Yes - or lower. Shares can go up or down.2. Is this cash from cashing in eligible to be taxed and NI if I cash in in 3 years?
3. How do share options work? Does it mean I have to actually buy the shares at a lower value than they are worth, and then you can cash them in and keep the difference?
2. Most likely. Check with an accountant.
3. Yes - or if the share price is below the option "strike value" then the options are worthless.
Example:
Given 100 shares at £1.00 each value in Year 0 AND 100 options at strike value 50p in Year 0.
You don't cash anything out until year 4 when you cash the lot.
In year 4 - shares are now worth £1.50.
So you have 100 of those - £150.
And 100 options which are worth (£1.50 - 50p = £1.00 each) so £100.
Or shares are now worth 50p.
100 shares are worth £50.
Options are worth ZERO (50p - 50p = 0p).
Thought I'd tag along here, rather than start a new thread.
I'm just in the process of exercising some options from a previous employment. The share scheme was based in Bermuda, and priced in USD.
If for example I'm due $2500 as a result, I understand that Bermuda is tax-free - so no taxes to be paid there.
How would that be handled at the UK end? Ex-colleagues are reporting paying 40%, which would seem to be income tax based.
I appreciate it could more complex than you can give an answer for without seeing the agreements
I'm just in the process of exercising some options from a previous employment. The share scheme was based in Bermuda, and priced in USD.
If for example I'm due $2500 as a result, I understand that Bermuda is tax-free - so no taxes to be paid there.
How would that be handled at the UK end? Ex-colleagues are reporting paying 40%, which would seem to be income tax based.
I appreciate it could more complex than you can give an answer for without seeing the agreements
Puggit said:
Thought I'd tag along here, rather than start a new thread.
I'm just in the process of exercising some options from a previous employment. The share scheme was based in Bermuda, and priced in USD.
If for example I'm due $2500 as a result, I understand that Bermuda is tax-free - so no taxes to be paid there.
How would that be handled at the UK end? Ex-colleagues are reporting paying 40%, which would seem to be income tax based.
I appreciate it could more complex than you can give an answer for without seeing the agreements
You need to ask Eric.I'm just in the process of exercising some options from a previous employment. The share scheme was based in Bermuda, and priced in USD.
If for example I'm due $2500 as a result, I understand that Bermuda is tax-free - so no taxes to be paid there.
How would that be handled at the UK end? Ex-colleagues are reporting paying 40%, which would seem to be income tax based.
I appreciate it could more complex than you can give an answer for without seeing the agreements
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