Tax on Exercise of Share Options

[BowlFullofJelly]

My company has just been bought, and as part of this employees will have to exercise their share options.

Does anyone know whether I will need to pay income tax on the proceeds, or will Capital gains tax apply? I've looked at HMRC and it seems to be Capital Gains, but my boss seems to think income tax.

If Capital Gains, will my company pay me the full amount and I arrange to pay the tax directly with HMRC, or will it be deducted through PAYE?

Not sure if it is relevant, but it is a French company so have no idea if it is an approved scheme or not....

And advice would be appreciated, as it makes a MASSIVE difference to how much I expect to receive.

Is it a sharesave scheme because I thought if you had to exercise your option it just meant that you had to turn your savings into shares. Though I may be wrong.

I'm sure you are then free to sell those shares when you want and you would only pay capital gains tax on any profit you make over about £10,000 or whatever the CGT allowance is now.

DH has sharesave with his work and also sharebuy where you buy shares monthly out of pre-tax salary.

It's not sharesave no, I was just given share options by my company, so on sale they are bought off me at current price - so I get the difference between the price they were when I was given them and the price now. Or I think that's how it works anyway .

So you think it is CGT rather than income tax on any money I receive from this?

It really depends on what type of scheme it is. There are four approved ones and obviously each company is welcome to design their own unapproved one. So several different ways of taxing them.

Unapproved scheme is taxed to income tax on exercise. The difference between market value of exercise and any money you pay for the shares is taxed to income tax. NI may or may not be due (usually is if there is a takeover). CGT is due on the difference between the sales price and the market value at exercise so if you exercise and immediately sell there's no CGT but only income tax (and maybe NI).

These are the basic rules for unapproved schemes now. If you we're given options a long time ago (in the 90s, i think) there may be slightly different rules as these have changed throughout.

Depends on scheme and nature of the sale of your company...you may have protected rights under a TUPE agreement.

Sorry I only know about the sharesave ones as DH has them. So no idea about the tax situation for any other sort of share exercise.

If you were given shares though the whole share price is like profit as you didn't buy them so I'm not sure at all which sort of tax you would pay as it could be seen as a gift.

If it is an unapproved share option scheme, the tax point is at exercise, and you will be liable to income tax on the spread, that is, the amount the shares are worth at exercise, LESS the amount, if anything, you paid for them.

Op, do you work for a French company in the UK, or for a uk subsidiary of a French company? Are the options themselves for shares in the French company?