Question
Having, over a full working life, built up a large [for me, if not for a millionaire!] holding in my former employer's shares, I am unclear how to deal with CGT now that I'm retired. Shares were acquired through:
[1] Profit-sharing
[2] SAYE contracts
[3] Partnership shares (can't quite remember how that worked)
[4] Rights issues
[5] Re-capitalisations and 'splits'
[6] dividend re-investment via 'DRIP' and other names (for a while, scrip issues in lieu of dividend).
I think that's it!
How do I establish the base prices for shares I sell? Any comments would be appreciated, there must be many people in similar situations.Answer
Blimey, you have built up a mixed bag of shares in your former employer, hope their share price has soared and you're sitting on a nice overall profit. And thank you for an interesting question, I hope the answer will help many people with shares acquired in one or more of these ways.
As for capital gains tax (CGT) and the base price of the shares acquired, let's take a look at each in turn.
1. Profit Sharing
The profit share scheme was available between 1978-2001 and designed to give employees shares as a benefit that wasn't subject to income tax. Under the scheme shares were acquired (called 'appropriated') for employees and held under trust for between 2-3 years. The base price for CGT purposes is the open market value of the shares at appropriation, i.e. when the shares were put into the trust.
2. Partnership Shares (Share Incentive Plan)
Share Incentive Plans effectively replaced the Profit Share scheme, allowing employees to buy shares in their employer from pre tax income (avoiding income tax and NI) - called partnership shares - as well as receive extra free shares. Provided you keep the shares in the Plan there's no CGT when you come to sell them. Take the shares out of the Plan and the base price for CGT is their market value on the date taken out of the plan. When you left the employer the shares would normally have been taken out of the plan at that time.
3. Save As You Earn (SAYE)
The cost of shares under SAYE for CGT is deemed to be the fixed option price you paid for them under the scheme. In the unlikely event you had to pay income tax on the 'gain' when exercising the share option (generally only happens if the share scheme wasn't HMRC approved) then the base price would be the option price plus the gain on which income tax was paid.
4. Rights Issues
Rights issue usually allow you to buy new shares at a discount to the market price. To calculate the gain for CGT you effectively work out an average price paid for the combined rights issue and the existing shares they relate to then multiply that by the shares sold to get an allowable cost. Rather than cover in detail here I'd suggest taking a look at the HMRC http://www.hmrc.gov.uk/helpsheets/hs285.pdf document here, especially the example on page
5. Re-captilations and splits
A split is when a company increases the shares in issue and correspondingly reduces the share price. For example, you have 100 shares at 100p each, the company gives you another 100 reducing the price to 50p each. The key is that the new shares are not deemed to be a new acquisition, instead you use the purchase price of the original shares and divide by the new increased number of shares to get a base cost per share - more details in the HMRC document mentioned above.
6. Dividend re-investment via DRIP
DRIP is a scheme offered by some companies whereby you use dividends to automatically buy more shares. Although you don't receive the cash the dividend is taxed as normal and the base cost of the shares is the price they're purchased at.
The downside with all the above is that there's potentially a lot of legwork required to collate/calculate the necessary base costs when calculating gains. Hopefully you have a mountain of paperwork containing the necessary info or, if you're lucky, your former employer may publish prices for rights issues, splits and DRIP.
Happy calculating!
Having, over a full working life, built up a large [for me, if not for a millionaire!] holding in my former employer's shares, I am unclear how to deal with CGT now that I'm retired. Shares were acquired through:
[1] Profit-sharing
[2] SAYE contracts
[3] Partnership shares (can't quite remember how that worked)
[4] Rights issues
[5] Re-capitalisations and 'splits'
[6] dividend re-investment via 'DRIP' and other names (for a while, scrip issues in lieu of dividend).
I think that's it!
How do I establish the base prices for shares I sell? Any comments would be appreciated, there must be many people in similar situations.Answer
Blimey, you have built up a mixed bag of shares in your former employer, hope their share price has soared and you're sitting on a nice overall profit. And thank you for an interesting question, I hope the answer will help many people with shares acquired in one or more of these ways.
As for capital gains tax (CGT) and the base price of the shares acquired, let's take a look at each in turn.
1. Profit Sharing
The profit share scheme was available between 1978-2001 and designed to give employees shares as a benefit that wasn't subject to income tax. Under the scheme shares were acquired (called 'appropriated') for employees and held under trust for between 2-3 years. The base price for CGT purposes is the open market value of the shares at appropriation, i.e. when the shares were put into the trust.
2. Partnership Shares (Share Incentive Plan)
Share Incentive Plans effectively replaced the Profit Share scheme, allowing employees to buy shares in their employer from pre tax income (avoiding income tax and NI) - called partnership shares - as well as receive extra free shares. Provided you keep the shares in the Plan there's no CGT when you come to sell them. Take the shares out of the Plan and the base price for CGT is their market value on the date taken out of the plan. When you left the employer the shares would normally have been taken out of the plan at that time.
3. Save As You Earn (SAYE)
The cost of shares under SAYE for CGT is deemed to be the fixed option price you paid for them under the scheme. In the unlikely event you had to pay income tax on the 'gain' when exercising the share option (generally only happens if the share scheme wasn't HMRC approved) then the base price would be the option price plus the gain on which income tax was paid.
4. Rights Issues
Rights issue usually allow you to buy new shares at a discount to the market price. To calculate the gain for CGT you effectively work out an average price paid for the combined rights issue and the existing shares they relate to then multiply that by the shares sold to get an allowable cost. Rather than cover in detail here I'd suggest taking a look at the HMRC http://www.hmrc.gov.uk/helpsheets/hs285.pdf document here, especially the example on page
5. Re-captilations and splits
A split is when a company increases the shares in issue and correspondingly reduces the share price. For example, you have 100 shares at 100p each, the company gives you another 100 reducing the price to 50p each. The key is that the new shares are not deemed to be a new acquisition, instead you use the purchase price of the original shares and divide by the new increased number of shares to get a base cost per share - more details in the HMRC document mentioned above.
6. Dividend re-investment via DRIP
DRIP is a scheme offered by some companies whereby you use dividends to automatically buy more shares. Although you don't receive the cash the dividend is taxed as normal and the base cost of the shares is the price they're purchased at.
The downside with all the above is that there's potentially a lot of legwork required to collate/calculate the necessary base costs when calculating gains. Hopefully you have a mountain of paperwork containing the necessary info or, if you're lucky, your former employer may publish prices for rights issues, splits and DRIP.
Happy calculating!
Read this Q and A at http://www.candidmoney.com/askjustin/851/cgt-and-saye,-rights-issues,-splits,-drip-etc
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