Non-approved American Stock Options

Posted by: NB on 27 January 2004

Here's a challenge for any of the Tax advisors out there, all others turn away now this could turn out boring!

I have a client who has just sold a chunk of non-approved American Stock OPtions. What I want to know is do they rank for Income Tax or Capital Gains.

My first instinct is that they rank for Income Tax in the same way non-approved share options do in this county but apparantly the Company Secretary has hinted that the Capital Gains exemption is available for this transaction.
So wich is it to be? Income Tax schedule E or Capital Gains Tax?


Regards


NB
Posted on: 28 January 2004 by MichaelC
NB

I asked my learned colleagues who at first suggested Sch E. Having said that some more detail may swing this towards Capital Gains.

Mike
Posted on: 28 January 2004 by NB
Thanks Mike

what details would swing it towards Capital Gains as the advice I am receiving is pointing towards Income Tax.

Regards


NB
Posted on: 28 January 2004 by MichaelC
NB

My colleagues and I believe this falls to Income Tax.

However your question suggests the sale rather than the exercise of the options. This leads to on what basis were the options originally granted or (crucially) purchased.

Mike
Posted on: 29 January 2004 by MichaelC
NB

The more I look at this the more the Sch E position is confirmed. I have been looking at some guidance notes which specifically state "any amounts received by the employee for the surrender of the options are, again, taxable under Sch E". Although this extract does not specifically refer to the sale of options I can see the princple being applied.

Mike
Posted on: 29 January 2004 by NB
Mike,

I have also confirmed that the sale of the options rank for Employment as they were non-approved. My clients have trated the gain as part of her salary and deducted Paye accordingly.

I am happy that the options are correctly Taxed under Scedule E.

This is the first time I have acted for this client and you are correct in stating that I must check the Taxation treatment of the granting of the options.

More work to do sigh!


Regards


NB