Unapproved options - time to exercise?
From 6th April 2010, new rates of income tax will apply to the exercise of unapproved share options by UK holders.
Currently the high-end rate of income tax is at 40%. This will increase to 50% from April for those individuals who have a total taxable income (including the option gain) in excess of £150,000.
In cases where employer and employee NICs are payable, the rate will increase from 13.8% to 15.8% for the majority of companies.
Even if the current rules may not permit an early exercise, private companies will usually grant this if the option holder also agrees. This will not incur an additional tax charge and would prevent the option holder from incurring the higher tax charges from 6th April 2010.
In order to exercise an option the option holder will need to pay the exercise price, which in some cases will be a significant amount. The employer could help by paying an advance bonus. Alternatively the employer could make a loan to the option holder subject to tax and legal issues.
If you are considering introducing new tax-efficient employee share schemes to help lessen the tax burden for higher paid staff members contact us for further advice.