EMIs - exercise price

EMIs - exercise price

Didn't find your answer?

Assuming shares will not be readily convertible (ie free from NI implications) is there any reason why exercise price should not be set at par, in preference to MV?

Eg, option to be granted for 100 shares, current MV £20,000. If exercise price set at £20,000, no IT on exercise. If price set at £100, IT of, say, £8,000 on exercise. Surely the £8k tax charge is preferable to acquisition cost of £20k? As far as I understand, CGT base cost is same in both cases. What have I missed?
David Lochhead

Replies (1)

Please login or register to join the discussion.

avatar
By User deleted
08th Oct 2004 12:00

you haven't missed much!
In terms of taxation costs etc your analysis is fine. It is cheaper for the employee to pay the 40% tax rather than the 100% subscription.

Do bear in mind though, that if there is no market for the shares on the date of exercise that the employee must find the money from elsewhere to pay the tax bill. Where does he get this from and is it worth exercising if there is no market - think of the risks! If there is a market, then National Insurance and PAYE will apply to the discount. Yes, still cheaper for the employee than 100% subscription, but an additional cost nonetheless.

On the non-tax side, the purpose of granting share options is to encourage employees to help grow the business and the join in future capital growth etc. Why then, should one wish to grant options to new employees which enables them to benefit from the capital growth that has been generated before they joined? Existing employees, I accept is a slightly different situation.

Thanks (0)