Stock options and income tax implications

Stock options and income tax implications

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Is there an immediate 'income' from receiving stock options (with a nil instrinsic value), and if so, how is it calculated. If not is there only a taxable event when the options are exercised, or is there no taxable event until the shares are eventually sold - and would such event be taxed as income or as a capital gain? Any guidance would be appreciated.
Georgina Pierce

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By AnonymousUser
13th Aug 2003 11:23

Approved or unapproved options ?
Well, no one else was offering so here goes...

Payment in options falls under the old Sch E. This has been revamped of course within the new ITEPA 2003, ss193-197, 471 & 517-526.

The legislation has evolved in bits and pieces and there are a number of different rules for different situations, so I can't go into them all here.

CGT rules on disposal also vary depending on the method of acquisition.

The main distinction through is between approved and unapproved share option schemes, and that should be your first line of research.

Too big a topic to provide much real help, sorry!

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By Georgina Rollings
13th Aug 2003 21:54

Unapproved, I guess - the company that is paying in options is an American company so presumably outside of the UK rules. My client is a consultant who usually bills through his service company. We are trying to work out which the best of three options is:
* bill both cash and options through the company (I have a feeling that the company would then be taxed on income on receiving the options, and they would be in the company's name instead of his)
* bill cash through the company and have the options allocated directly to him (looks very fishy with IR35)
* bill outside of the company
It all feels a bit messy...

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By AnonymousUser
14th Aug 2003 11:32

Oh...
I do feel obliged to respond now but can't answer you query...

So you have three issues - receive them through the company and treat them as company acquisitions and have any tax paid under company rules and rates...or receive them as an individual and pay personal tax under the Sch E rules.

Even once both of these scenarios have been analysed there is still the consideration of how this will affect IR35 status, which you rightly identify as "messy" !

Could the Revenue deem the options to be in consequence of employment under Sch E if the company is caught by IR35 ? In which case acquiring through the company is not an option, so to speak.

If there is a serious amount involved some serious advice should be sought on this of course.

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By Georgina Rollings
14th Aug 2003 18:26

Thanks, though :)
Well, at least I didn't miss something obvious...

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