EMIshare option

EMIshare option

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I have a client who grant EMI (share option) in the company he work for, in June 2002 he bought 600 share for £1.00 each market value was £4.00, last Sept 2003 the company bought over and they bought the shares back for £20.00 each.
Can you help how to calculate the tax he due for the year 2003/04 in the Tax Return.
Thank you.
Abdu Sukk

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By User deleted
22nd Sep 2004 13:36

I am afraid this is the only information I have
Thank you Ken for your help, as I say I am looking after the employee:
- The EMI option was granted and exercise in June 2002. when my client bought 600 share.
- The market value was £4./ share
- The company deduct NI and PAYE from the final payment to cover the amount chargeable under Schedule E for 2002-2003. I do not have the details of it yet.
- The employee (my client) does not own 1% of the co share
- Since Sept 2003 all the old staff left the firm including my client.

I hope this cleared the picture.

thank you again for your help.

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By AnonymousUser
21st Sep 2004 18:17

There may be more to this than meets the eye
It's not quite clear from the query when the EMI option was granted. This is important as CGT taper relief starts to run from that date. You also do not say what was the market value of the shares at the time of grant. This is also important because if the option price was less than MV at the time of grant, a Schedule E charge arises for 2002-2003 on the difference. So, say the option was granted in June 2001, when the shares were worth, say, £2 each there would have been a Schedule E charge of £1 per share on the exercise of the option. However, I'll assume for the moment that the options were granted in June 2002 and immediately exercised. The amount chargeable under Schedule E for 2002-2003 is thus £3 per share - which of course should have gone on the SA return. The amount taxed under Schedule E is then part of the cost for CGT so when the shares were bought back in September 2003 the gain would, per share, be £16. As the shares will have only have been held of one complete year the business asset taper is 50%. The options would have had to have been granted more than two years before the shares were bought back to qualify for the full 75% taper. There are conditions though for BATR that the company is a trading company or holding company of a trading group or where the employee does not own more than 10% of shares.

However, the problem as I see it is that I cannot see how the buy-back is not a distribution under s209(2)(b) ICTA 1988. The amount of the buy-back consideration may be treated as capital but only if certain conditions are met. One is that the company must be unquoted (AIM or USM shares count for this purpose), however another is that the shares must have been held for 5 years so that definitely means that it cannot be a POS and must be a distribution i.e. the excess over the amount subscribed is liable to income tax as a dividend (don't see any mechanism for taking into account the amount taxed under Schedule E on exercise, though this doesn't seem right). Not so good. I cannot see anything in the EMI rules which avoids these consequences.

I've a feeling there must be more to this because the above consequences must have been known before the buy-back so it is conceivable that the transaction was structured in a more tax-efficient way than it appears, and, as I say, there was more to it than a straightforward buy-back.

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