HMRC now extends favourable valuation arrangement to LTIPs
Here is a common situation you want to exercise your options to buy shares so you send your notice form to HR or whoever deals with this in your Company asking them to sell at least some of the shares immediately to pay for the costs (purchase and tax if any).
The problem is that you might you could exercise when shares are worth 50p and be taxable on that price but the share sale takes a day or two to complete by which time the quoted share price shifts so you only get, say, 49p. In other words you could pay tax on more than you get on an immediate sale.
HMRC have allowed the lower sale price (or average price where there are several sales) to be used for options where there is a cashless exercise and now have confirmed they will extend this to similar situations for Long-Term Incentive Plans (LTIPs).
This is particularly relevant for LTIP awards where typically shares will be awarded free on satisfying performance conditions so the tax (and National Insurance) liability is on the full value of the shares received.
ESSU and Shares and Assets Valuation have set out more detail about this in the HMRC manual at ERSM 220060 makes clear that where sales of shares extend beyond Day 2, the statutory valuation approach in section 272 TCGA 1992 needs to be followed.
Please note: this only applies for an immediate sale within one or two days of an option exercise or LTIP award and not for any later sales.