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Hi STW,
Share options granted under EMI scheme.
1. If I leave the company and exercise the options within 90 days (but don't sell them) - do I pay income tax+NI on the market value of the options at the point of exercising? Or only when I actually sell them?
2. If I leave the company, exercise the options within 90 days, and sell them after 90 days, do I pay the reduced capital gains tax (10%), or the full amount, on the increased (hopefully!) value of the options?
Thanks,
Duane.
[s]From what I can read, and from my experience in receiving these sort of benefits, Income Tax and NI will be payable when you exercise the option and it will be payable on the difference between the cost of the option (option price times number of shares) and the value (actual share price times number of shares). CGT will be payable on the sale of the shares based on the change in share price from date it was exercised to the date it was sold, nothing to do with the option price. I'd doubt that any CGT would be payable after only 90 days unless you are using your CGT allowance on other things.[/s]
Edit. Scratch all that. I've misread something and it all looks like a confusing mess.
I've exercised EMI options once and the tax was paid on the shares when sold not when they were excercised. As to whether you pay standard CGT or the EMI rate (you only get 10% if you own +10% of the company shares if I remember correctly) you probably need to talk to an accountant.
I believe that tax on EMI options is due on a liquidity event e.g. Company acquisition, IPO, sale of shares etc.
10% stated above is entrepreneurs relief if you are a founder with min 5% stock. EMI is meant to replicate this relief as an incentive for emplyees who are working min 25hrs/wk at the a co but are not a founder. My understanding is that if you leave, you lose this tax benefit and end up having to pay your applicable rate of capital gains at a liquidity event.
I'm not an accountant or lawyer and schemes can be written differently - Worth having a chat with your company CFO to clarify and getting proper legal / financial advice re above before placing your cash into illiquid stock that could also be diluted etc.