Shares / Share Options

hello,
please move if wrong forum...

I work for a small private company and have been offered shares OR share options. If I go for shares now I have to pay (its BIK I think) .. but not with the Options as that will be CGT later..

My question is ... am I correct above...

What are the advantages (tax wise) of going for either Shares or Share Options - whats the difference - is it preferential to pay the BIK now and have Shares ...

Any help/info appreciated!
-A-

I dont think there is any tax difference and that CGT will be based on the profit you make from the transaction. Although, I think there is some sort of tax relief for investing in the company you work for and that you may not qualify for tax relief.

Options, if at the right price might be the safer bet depending on the price. Also, I would not base you decision purely on the tax efficiency etc.

When options are exercised and sold, you pay income tax on the difference between exercise price and sale price, not CGT. You only pay CGT in relation to options if you exercise at a certain date (and pay income tax), hold on to them until they increase again in price and then, if you sell, you'd pay CGT on the difference between market value on the date of exercise and market value on the date of sale.

Buying shares is more tax efficient than options, because it's all CGT on any gain. However, the (potentially significant) disadvantage is that you have to pay for the shares in the first place, which increases your risk of loss if the shares don't increase in value. You don't have that risk with options as you can chose not to exercise them unless and until you know you are going to make money. If you are offered the chance to buy shares at a discount, then you do have to pay BIK on that discount now, and then CGT when you sell them in the future.

If you have to pay income tax on options, that tax has to be paid within 30 days of the sale date.

Are you being offered the same number of each? Generally, a share has greater value than an option, unless you expect the share to grow in price by more than the current value of the share within the option period.

With a private company I doubt the value of the option will actually increase!

hey guys thanks for the advice... it's certainly clarified a few issues.

its a private company so i guess 'value' etc is a nominal idea right now..

but i think its worth me paying the BIK on the discounted shares right now (obviously hoping we do well as a company) and at some point in the future im only exposed to CGT

although i understand the CGT is in the government sights too :-(

aloleary said:

but i think its worth me paying the BIK on the discounted shares right now (obviously hoping we do well as a company) and at some point in the future im only exposed to CGT

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At some point in the future, you are exposed to CGT if the value of the shares increases. That's the only thing I would worry about - many companies fail, many companies continue but don't have an "exit" event (such as a trade sale or flotation (remember them?)). Even if the value increases, there may be a number of funding rounds between now and an exit and you could be diluted or may not be able to afford to follow your money to maintain your %age shareholding.

I don't know the company and you are best placed to judge, but the route of buying the shares means that you risk losing all your money; the route of taking share options eliminates that risk, but also takes away some (20%) of the potential upside. It's down to your view of the company and your attitude to risk.