I am a PAYE employee who sold some stock options in 2003. Therefore I need to complete my tax payment at the end of October. I will be offsetting some of the funds due by adding to a pension fund.
My question is what is the best option
- to pay AVC's into my existing company pension
or
- pay a single dividend into another pension
> I am a PAYE employee who sold some stock options in 2003. Therefore I need to complete my tax payment at the end of October. I will be offsetting some of the funds due by adding to a pension fund
I presume what you mean is that you'll do a lump sum pension contribution to offset some of the INCOME tax due on the exercise of stock options at a discount to the market value at the time? Note that stock options generally attract both INCOME tax (on the difference between the market value at the time of exercise and the discounted option price) and CGT (on the difference between the disposal price and the market value at the time of exercise). If you exercise and sell at the same time then only INCOME tax applies. If any CGT is due then this is completely separate from INCOME tax and you cannot reduce your CGT liabilities through pension contributions etc.
> My question is what is the best option
- to pay AVC's into my existing company pension
or
- pay a single dividend into another pension
This seems to be a separate question to the tax issue and the answer depends on the charges that apply, investment/fund choices, flexibility etc. offered by the different pension options.
Note that you can also make a lump sum contribution before October 31st of any year in respect of "unused" pension contribution tax relief from the previous year:
So having made a profit ( lucky me) on the shares in 2003 I will be paying the remaining monies due as well as paying preliminary tax due for shares sold during 2004 by end of October. Thats a given and it is income tax. The figure is around 30k.
I just hate paying 30k to the taxman and would prefer to offset money to my pension to cut this bill somehow.
i.e. income tax due 30k
- additional pension contribution 20k @42%= 8400
leaving me with a tax bill of 21600k ( plus of course I have to fork out for the pension of 20k)
So it ends up costing me 41600 but at least 20k is in my pension - is this correct ?
Then the second part of my question is - Is it best to put the 20k into my existing company pension scheme or a one off payment to another fund ??
> So it ends up costing me 41600 but at least 20k is in my pension - is this correct ?
Assuming that your €20K lump sum pension contribution is within the relevant age related pension contribution tax relief limits for 2003 and/or 2004 (depending on which year's allowance you're using up) then you will get full tax relief at your marginal rate. The relevant tax relief limits are listed here:
Note that you can also claim PRSI (and health levy?) relief on such pension contributions - another 4% (6%?) refund - but Welfare are STILL not geared up to process them at the moment... :\
> Is it best to put the 20k into my existing company pension scheme or a one off payment to another fund ??
There's no easy answer to this without more details about the respective plans - charges, choice of funds etc. etc.
If you sold shares in 2004 then you are paying the full CGT on the profit by oct 31,there is no preliminary tax fot cgt.
Stock options subject to income tax are options acquired by employees not options sold. When you say you sold the stock options I presume you mean you sold the shares acquired by exercising the options.
> Stock options subject to income tax are options acquired by employees not options sold. When you say you sold the stock options I presume you mean you sold the shares acquired by exercising the options.
Most ESOP/ESPPs allow you to exercise and sell in one go thus pocketing the market value less the option price. This is subject to income tax only. CGT only becomes an issue if you exercise the option (in which case a discounted option price will trigger an income tax liability) and then hold them and sell them later when they have risen in value (in which case the gain is assessable for CGT). Maybe we're simply saying the same thing in possibly different ways? In whis specific case I assume that SteveMc1 exercised and sold in one go thus giving rise to an income tax but no CGT liability?
I agree CGT only arises if the shares are held and increase in value.
I would be surprised if many people exercise and sell the shares at the same time. All you are doing is taking a benefit from your employer at your marginal rate of tax with the hassle of becoming a self assessed tax person for the year.
Share options are only attractive to employees as a method of renumeration if the shares are expected to rise and they make a gain at 20% though alot of employees have got badly burned with company shares in the last few years.
> I held onto them until I needed to sell and yes they did increase in value. So is this CGT or Income tax due ?
Both if the options were priced at a discount to the market value at the time of exercise. See above for my description of how income tax applies on the market value at the time of exercise less the discounted option price and CGT applies on the eventual disposal price less the market value at the time of exercise. The income tax would have been due in the tax year in which the options were exercised. The CGT on the disposal gain may be due at a later date. Revenue will often be informed about such schemes so if you don't declare and pay the income tax due then they will eventually bill you for it and collect it in a lump sum or by adjustment (reduction) of your tax credits over one or more years. CGT is a self assessment tax.
I am surprised that if your company was giving out share options that they didn't also provide you with the basic tax info. There is also a difference between the taxation of unapproved and revenue approved option schemes.
If you sold shares in 2003 then the CGT was due either on oct 31 2003 or jan 31 2004 depending when you sold them.
The taxation on the exercise of option was changed by FA2003. If the option was exercised after june 2003 then the income tax on the excess of the market value over the option price was due one month after the date of exercise.
Given that you are talking about paying 30k tax on this I would really get some advice on this.