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Hi I was wondering if someone can help me.

Example: Say Mr A owns 100% shares in A Ltd and grants a share option to one of his employees.  Will there be a capital disposal for Mr A on the shares that have been transferred?  If so, what would the proceeds be?

I understand that the employee will be assessed on the difference between market value and price paid (assume not approved options) but Mr A doesn't actually receive any money so would be harsh to assess him on proceeds at market value?

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By eastangliantaxadvisor
02nd Oct 2012 08:40

The trigger point for CGT is when he disposes of the shares, bot when the option is granted.


Unforntnely, the CGT will be payable, regardless of if money has been rececived.


I suppose there is a possbility of a hold over relief claim under s165., but would the employee be happy with that?

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Replying to Cheshire:
By tha1_n
02nd Oct 2012 15:36

Thanks for your prompt response.  I thought as much.  I assume you mean will be a deemed disposal on exercise of the shares rather the grant? 

The way I see it, there is no benefit for Mr A as an individual?  A Ltd gets a CT deduction, the employee receives shares and Mr A is hit with a tax bill


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By Anne Fairpo
02nd Oct 2012 18:58

Why not have the employee option over new shares?

Why is the employee paying the company, and not A himself? If the shareholder is satisfying the option, it would be more usual for the shareholder to be paid the exercise price - that might give a capital gains tax charge, where the exercise price is above base cost, but it gives the cash as well. That wouldn't necessarily be a bargain otherwise than at arm's length (you'd take the grant of the option into account; if the option is granted at market value on the date of grant, it should be arguably a bargain at arm's length, even if market value later increases) so shouldn't fall foul of s17, assuming that A and the employee aren't otherwise connected.

If in doubt, and A owns 100% of the shares in the company, the same result could be achieved by having the option over new shares - issued on exercise. No disposal and no CGT for A, still get the CT deduction and the employee gets shares.

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By Ding Dong
02nd Oct 2012 20:13

why not approved?

Firstly, agree with Afairpo, I have done options for clients over existing and new shares but would reccomend the latter (as I was advised by the specialist who drew up the agreements they are actually easier...!)

And why not get approved under an EMI by HMRC - dependant upon history of teh company (is it new) you can often geta a relatively low value agreed based on historic profits rather than future potential.

So no CGT, base cost agreed, scheme approved by HMRC - surely that saving would outweigh the cost of setting up an EMI?

Just a thought! (unless of course MV is lower than current CGT exempt amount in which case Mr A has made a gain, BUT it is tax free - assuming he has no other C Gains in the year)

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