CGT & Residency

J

joesope

Guest
Hi everyone,

Trying to figure this out myself thru Revenue websites etc but cant get a proper answer.

I have anumber of share options from my employer which, when exercised at current Mkt price stand to make a profit in the region of €50k gross.

I am earning €70k gross currently so if i exercise these options now, any gain i make will be added onto my inccome and i'll lose 42% of it.

However, what would happen if i left the country and didnt work? I understand that i will be treated as a resident for 3 years after i leave the country. However, consider the following scenario:

Leave the country and dont work for say 2 years. If i exercised half of the options in year 1 and the other half in year 2, would the gain of say €25k per year be treated as income and therefore liable to income tax at 20% as i would fall within the lower tax bracket?

I was thinking about travelling for about 2 years and the saving i would make would hopefully pay a good chunk of the costs.

Basically looking for anyway to minimise or eliminate the tax hit considering travelling is a viable option for me

Any ideas anyone???

Thanks
 
joesope said:
I am earning €70k gross currently so if i exercise these options now, any gain i make will be added onto my inccome and i'll lose 42% of it.
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More accurately - when you exercise the options the difference between the (often discounted) exercise price and the market price on the day is subject to income tax. If you sell immediately at that price then no further tax applies. If you hold and eventaully sell at a price above the market price on the day of exercise then you are assessed for CGT on the gain.
However, what would happen if i left the country and didnt work? I understand that i will be treated as a resident for 3 years after i leave the country. However, consider the following scenario:
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If you are resident when you exercise the options then you are liable for income tax anyway. If you become non resident then you may still be liable for taxes on any capital gain arising in another jurisdiction. By all means go travelling but to do so mainly/solely in an attempt to avoid tax in Ireland seems a bit excessive.
 
Firstly what sort of share option scheme is it? - revenue approved schemes are exempt from tax on exercise but cgt will still arise on disposal - check that out as that is very important

If income tax does still arise i.e. its an unapproved scheme and your employer is irish based a charge to irish income tax will still arise regardless of your residence status as your income is irish source income

The 3 year rule you speak of is called ordinarily residence a further test in addition to residence

You still could exercise half of your options now and the other half next year when you are not working and utilise your unused standard rate cut-off next year - again assuming the scheme is unapproved?

In terms of your diposal a CGT charge will arise no matter what as it relates to what is called an irish specified asset which cannot be avoided even if you go non resident and non ordinarily resident
 
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