Employment Income Flashcards
what is a share option scheme and share incentive scheme?
share option scheme= option to buy shares in the future at a given price
- incentive scheme- shares are gifted or allowed to buy at a discounted price
Share Incentive Plan (SIP) key criteria?
- if shares are held for at least 5 years then no IT, NIC, and CGT.
- if held more than 3 but less than 5 they are included as earning for IT and NIC at lower of MV and date when granted.
- dividend shares are exempt from tax if been in scheme for 3 years.
- if shares are in plan for less than 3 years they are treated as earning on the basis of MV at the date of withdraw.
- when shares are sold there is CGT to pay.
share option scheme criteria?
if under non tax advantaged scheme
- no tax at point of grant
- on exercise IT charge. include at MV less cost. class 1NIC would be payable if converted into cash. and capital gain will arise when sold.
IF tax advantaged scheme:
- on grant no tax
- on exercise no tax and NIC.
- BADR will be available if the scheme is an EMI scheme
Question ALan
Q
Alan is employed by Sugar Ltd, a trading company. On 1 July 2018 he
was granted the option to buy 1,000 shares in Sugar Ltd for £2, their
market value at that time.
He exercises the option on 17 October 2022 when the shares are worth
£4.50. On 20 October 2022 he sells them for £5 each.
The shareholding represents less than a 5% interest in the company
Tax advantaged share options
1 July 2018 Grant of option = No tax
17 October 2022 Exercise of option = No tax
20 October 2022 CGT on disposal:
£
Sale proceeds 5,000
Less: Cost (2,000)
–––––
Chargeable gain – 2022/23 3,000
Non-tax advantaged share options
1 July 2018 Grant of option = No tax
17 October 2022 Exercise of option
Employment income
= 1,000 × (£4.50 – £2) £2,500
––––––
Assessed to income tax and NICs.
20 October 2022 CGT on disposal:
£
Sale proceeds 5,000
Less: MV @ exercise (4,500)
–––––
Chargeable gain – 2022/23 500
