Tax on Share options

carrutc2

I am really really confused about this one!

If an employee is part of an employee share option scheme and the option is excercised they have to pay only CGT? Or would they have to pay both CGT and Income tax? And if so how does that work? I know the taxes are only paid on the gain but dont understand why you pay both income and CGT, if you do!

Thanks so much.

Flaccus

You only pay income tax, and it's been like that for a good number of years. It doesn't attract CGT anymore. It's now charged at the highest rate of income tax and you have 30 days to pay it from realising the gain. Often your company will notify Revenue if you exercise any options. You use the RTS01 form and send it in along with a cheque to the collector general. It's also a good idea to do a return every year as well.

dbran

Hi

You pay income tax on the difference between the market price and the price of the share option. this needs to be paid over within 30 days on Form RTSO1.

When then sell the shares you pay cgt on the gain. The base cost is the cost you pay to acquire the shares, the cost of the right (if any) and the income tax paid.

When the scheme is revenue approved then there is relief from income tax. You will still pay CGT in a similar manner. Your base cost for CGT will be reduced as a result.

Hope this helps

Regards

dbran

Flaccus

Hang on. If it's a share option there is no CGT paid by the person who exercises the option. Tha'ts only on shares the person may have bought. In the case of the OP it sounds like the company has given him share options. So he only pays income tax on the gain when he exercises these options, not CGT. That' my experience anyway from exercising options. I've only ever filled in the RT01 and sent in the 42% of the gain or whatever it is to the revenue and they have been happy with that.

dbran

Flaccus wrote: »

You only pay income tax, and it's been like that for a good number of years. It doesn't attract CGT anymore. It's now charged at the highest rate of income tax and you have 30 days to pay it from realising the gain. Often your company will notify Revenue if you exercise any options. You use the RTS01 form and send it in along with a cheque to the collector general. It's also a good idea to do a return every year as well.

I believe this is totally incorrect.

There is CGT due if you subsequently sell the shares and make a gain. I am not aware of there having been any change.

A search of revenue.ie readily throws up "A Guide to Savings-Related Share Option Schemes" which explains how it operates with Income tax and CGT. It is dated 13 July 2009.

If you would provide a source to your information I would be grateful as I would be interested in knowing if the rules have indeed changed and I will stand corrected.


Kind Regards

dbran

dbran

Flaccus wrote: »

Hang on. If it's a share option there is no CGT paid by the person who exercises the option. Tha'ts only on shares the person may have bought. In the case of the OP it sounds like the company has given him share options. So he only pays income tax on the gain when he exercises these options, not CGT. That' my experience anyway from exercising options. I've only ever filled in the RT01 and sent in the 42% of the gain or whatever it is to the revenue and they have been happy with that.

Yes. We may be misunderstanding each other. There is income tax when he exercises the option.

But whenever he sells the shares on to someone else and makes a gain there is CGT. This is as with any sale of shares.

Kind Regards

dbran

Flaccus

Sorry mate. I have been dealing in share options through my company for over 7 years and selling through Pain Webber. About 3 years ago they rules changed in Ireland and you have to pay only on the gain within 30 days of realising it and it's charged at the higher rate of income tax. Exercising share options does NOT attract CGT. I wil dig out some documentation for you.

The rules you are referring to apply to Shares not Options. As you know, with Options, you don't physically own any share. With options, you have a right or option to sell x shares at some future point / price and the gain is the difference between that price and the price the company have given you the options at. It's an option so you don't have to exercise it. You don't own anything. With physical shares it's different...you pay benefit in kind if your company gave them to you at a discount even if you don't sell them as you physically own the shares, and capital gains on any profits you make when you sell the shares. You could even sell the shares and break even and not pay any CGT. With options you cannnot do this as you don't physically have any shares.

I'll dig something out.

Flaccus

dbran wrote: »

Yes. We may be misunderstanding each other. There is income tax when he exercises the option.

But whenever he sells the shares on to someone else and makes a gain there is CGT. This is as with any sale of shares.

Kind Regards

dbran

Correct. But as it's share options the OP is talking about he phyically doesn't own any shares so can't pass them onto someone else. He only has a right to exercise an option at a future price / date, and the broker passes on the gain only which attracts income tax. This is a common enough thing that companies do with their compensation and benefits scheme. There is also a share scheme which as you said attracts capital gains. A few years back they changed the rules for options. You used have 12 months to pay up after realising a gain. You now only have 1 month, and the revenue highlighted the fact, tax payable is considered income tax at the higher rate.

dbran

Flaccus wrote: »

Sorry mate. I have been dealing in share options through my company for over 7 years and selling through Pain Webber. About 3 years ago they rules changed in Ireland and you have to pay only on the gain within 30 days of realising it and it's charged at the higher rate of income tax. Exercising share options does NOT attract CGT. I wil dig out some documentation for you.

The rules you are referring to apply to Shares not Options. As you know, with Options, you don't physically own any share. With options, you have a right or option to sell x shares at some future point / price and the gain is the difference between that price and the price the company have given you the options at. It's an option so you don't have to exercise it. You don't own anything. With physical shares it's different...you pay benefit in kind if your company gave them to you at a discount even if you don't sell them as you physically own the shares, and capital gains on any profits you make when you sell the shares. You could even sell the shares and break even and not pay any CGT. With options you cannnot do this as you don't physically have any shares.

I'll dig something out.

Fair enough

Flaccus

Couldn't find exactly what I was looking for but the rts01 form says

www.revenue.ie/en/tax/it/forms/rtso1.pdf

"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."

**** Prior to 2003 you had a year to pay up!! ****

And on the tax payable :

"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."

**** I guess if the person actually bought the shares he would have to pay CGT too on any gains after he disposed of the shares as you pointed out. As in most option cases that I have heard of the company just awards you the options and you pay the gain when/if you exercise it. Usually it's a same day sale so you only see the gain, and pay tax on it at the standard rate of income tax (which is a balls) ****

SaschaKyiv

I thought I'd add my 2c worth

An individual pays RTSO on the exercise of a stock option. The RTSO is payable on the difference between the market value of the share on the date of exercise and the option price paid.

Essentially it taxes the benefit you have received in purchasing the share at below market value.

Once an individual exercises a share option he can do several things:

1) A same day sale - exercise the share option and sell the share on the same day. As the share has been acquired and disposed of on the same day there has been no uplift in value and so capital gains tax does not apply.

2) Exercise the option and never sell the share in which case only the RTSO on any benefit received is paid.

3) Exercise the option and dispose of the share at a later date. Disposing of the share at a later date attracts the same CGT rules as apply to any other share transaction. If a gain is made (the market value on the date of disposal exceeds the market value on the date of acquisition) then CGT is payable. If a loss is made (the market value on the date of disposal is lower than the market value on the date of acquisition) then a CGT loss is available.

Hope this has been helpful.

Raphfrk

Sorry to resurrect this thread, I have a question relating to foreign currencies.

For example,

(Share trades are handled in the US)

Shares are worth $30 (EUR 24) and the option is at $20 (EUR 16)

When exercised, there is a EUR 8 per share @ 41% income tax (30 days), right?

A while later, then shares are at $35, but the Euro has risen in the mean time to $1.50, so they are worth EUR 23.33 each.

Does this count as a rise for CGT purposes, since they went from $30 to $35, or does everything have to be converted to Euros (so in theory, you could end up having to pay CGT even if the dollar amount falls).

Also, what is the story with US withholding taxes. It seems that they tax a portion of any dividends, is there taxes to be paid on those in Ireland?

limpdd

Flaccus wrote: »

You only pay income tax, and it's been like that for a good number of years. It doesn't attract CGT anymore. It's now charged at the highest rate of income tax and you have 30 days to pay it from realising the gain. Often your company will notify Revenue if you exercise any options. You use the RTS01 form and send it in along with a cheque to the collector general. It's also a good idea to do a return every year as well.

Sorry to drag up an old thread but it matches my situation

I have just exercised and sold (at the same time) shares I got from my employer a few years ago. I am about to fill out the RTS01 form, however I have no idea how to "file a return". I've been looking on the net and I think it needs to be done before Aug 31st. Any ideas? Thanks.