Tax on Selling shares in employer company

  • Thread starter rubberdecky
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R

rubberdecky

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Hi there,

Apologies if there is already a thread on this, couldnt find anything on it.

Looking to see what the tax implications are for a friend who has recently sold his shares in his employer's company that were given to him by his employer free of charge. He received a cheque for the full amount and wants to know how to pay the tax on same and at what rate he should be paying. He is also shortly to receive a similar cheque for options that he recently exercised on which he made a profit. Do the same rules apply?

Thanks in advance for all input

R
 
He should be paying tax as if they are normal income (the whole amount on the gift shares , the profit on the options).

Revenue have a form for declaring this, but I can remember the name of it.
 
I thought as much, someone had mentioned something about thresholds etc but i was pretty sure that related to CGT.

Cheers
 
rubberdecky said:
I thought as much, someone had mentioned something about thresholds etc but i was pretty sure that related to CGT.

Cheers
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In general, income tax would apply to the value of the shares at the time they were given to them. CGT would apply to any increase in the value of the shares since he owned them.

If (like many shares) they have dropped in value since he recieved them, he will still have to pay income tax on the value at the time he recieved them.
 
The case with these shares is that they have gone up though since issue. Would the date of award of the shares be the trigger date for the income tax or the date of vesting? If you are submitting a return to the revenue, i presume you would have to show your workings etc on how you calculated the liability.
 
Got some of both, did not actually sell shares immediately on award.

For the shares, would the income tax be on the amount the shares were worth on date of issue, then CGT on the uplift to the date of sale?

For the share options, similarly would the income tax be on the value of the option at date of award or vesting and CGT on the uplift since then?
 
Tax on share options is income tax on the diff between exercise price (if any) and sale price - there's no split in income tax vs CGT if your friend didn't exercise them and hold on to them for a period. It would all be income tax and is payable within 30-days of sale.

Don't know the answer to the question as it relates to shares - the employer should be able to help.
 
My friend didnt really have the option to sell these share options until recently. The share options were granted in Mar 2009 but only vested recently so could not be exercised. Does this change the calculation?
 
No, it doesn't change the calculations with regard to share options. The vesting date doesn't really factor into it. Income tax is charged on difference between exercise price paid and sale price, payable within 30-days of the date of sale.
 
I fail to see how the increase in the price of a share can be taxed at income tax rates. Surely this is a capital gain. I understand that being awarded shares is subject to income tax as this is essentially income in the same way your wage is income, but any subsequent increase in value should surely be liablt to CGT.
 
For share options, if you exercise and sell on the same day, you pay tax on the difference between exercise price and sale price. End of story. This is regardless of when the share option vested.

If you exercised the share option e.g. 3 months ago and sold yesterday, then you pay income tax on the difference between exercise price and market value on the date of exercise and then CGT on the difference between the market value on the date of exercise and the market value on the date of sale.

If you do not exercise the option and hold the share for a period of time, then it's all income tax.

I am only answering with regard to share options - not shares. As I mentioned in my previous post, I do not know the answer where there was an actual share awarded at a certain date, an increase in value, and then a sale at a later date.

From the Revenue RTSO1 form:

"In the case of share options exercised on or after 30 June 2003, an amount (known as Relevant Tax on a Share Option ) in respect of the income tax liability must be paid to the Collector-General not later than 30 days after the date on which the share option is exercised. Relevant Tax on a Share Option is payable on the gain (i.e. the difference between the market price of the shares and the price actually paid) and calculated at the higher rate of income tax in force when the option is exercised. "

If you still don't believe me about the share options, then you should call Revenue.
 
WaterSprite said:
For share options, if you exercise and sell on the same day, you pay tax on the difference between exercise price and sale price. End of story. This is regardless of when the share option vested.

If you exercised the share option e.g. 3 months ago and sold yesterday, then you pay income tax on the difference between exercise price and market value on the date of exercise and then CGT on the difference between the market value on the date of exercise and the market value on the date of sale.

If you do not exercise the option and hold the share for a period of time, then it's all income tax.

I am only answering with regard to share options - not shares. As I mentioned in my previous post, I do not know the answer where there was an actual share awarded at a certain date, an increase in value, and then a sale at a later date.

From the Revenue RTSO1 form:

"In the case of share options exercised on or after 30 June 2003, an amount (known as Relevant Tax on a Share Option ) in respect of the income tax liability must be paid to the Collector-General not later than 30 days after the date on which the share option is exercised. Relevant Tax on a Share Option is payable on the gain (i.e. the difference between the market price of the shares and the price actually paid) and calculated at the higher rate of income tax in force when the option is exercised. "

If you still don't believe me about the share options, then you should call Revenue.
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Ok thanks for that, I have gotten on to Revenue as well but they can be pretty slow getting back to you.

I suppose the confusion for me was on the grant date vs exercise date. Its a pity in this case for the share options as the options had no value at grant date but had uplifted significantly by exercise date. Hence, there is now a big PAYE liability instead of a relatively smaller CGT liability.

Cheers anyways for the responses
 
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