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Options Open
This January, the Revenue sent a late Christmas present to anyone who has ever paid income tax on the exercise of employee share options. That happens when you are given the right to buy shares later at a fixed price, and make a 'paper profit' on the purchase because the shares have gone up in value. Some 'Revenue-approved' schemes avoid the immediate income tax charge, but you pay capital gains tax instead when you sell the shares.
A Court case showed that the way these deals had been taxed had been wrong for years. When the shares were sold, the starting point for CGT ought to be the value when they were bought - not the lower price actually paid under the option - plus the amount on which income tax had been paid (the 'paper profit'). Everyone had assumed that the cost was simply the amount paid plus the paper profit. This result surprised almost everyone, but it had the effect of turning past gains into losses, and creating losses where none had been claimed.
Sorting out and revising past years is not at all straightforward, and it will probably take a few more Court cases to fix exactly how it should be done. But if you have ever paid tax on exercising 'unapproved share options', and it is not already being dealt with, let us know.
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The case was Mansworth v Jelley, which has been extensively written about in the professional press. The Finance Bill 2003 reverses the effect of the Court of Appeal's decision for options exercised after Budget Day, 9 April 2003. The Revenue's views on the effect of the case were published on the Revenue website on 8 January 2003, and further details about processing claims made on the basis of their view were posted on 17 March.
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