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Here you can access summary of the key current tax developments in Ireland, the UK and internationally as reported by Chartered Accountants Ireland

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Deductions on Shares Acquired by Exercising Employee Share Options

In Revenue & Customs Brief 30/09, HMRC have confirmed a change in the treatment of allowable deductions in computing chargeable gains or losses related to unapproved employee share options and Enterprise Management Incentive share options exercised before 10 April 2003.

HMRC previously published guidance relating to unapproved employee share options and Enterprise Management Incentive share options exercised before 10 April 2003. The guidance stated how HMRC considered the gain or loss should be calculated on the disposal of shares acquired by such options by deducting from the disposal proceeds both of the following:

HMRC have received legal advice that this guidance is incorrect. Where the shares are treated as having been acquired at market value, that value is the full measure of their deemed cost of acquisition. The cost is not augmented by any amount chargeable to income tax on the exercise of the option. Thus in computing any capital gain or loss accruing on a disposal of the shares no deduction falls to be made of, or in respect of, any amount that is chargeable to income tax on exercising the option.

The change does not affect most people disposing of shares acquired through approved SAYE option schemes and approved Company Share Option Plans. It may affect those who acquired shares through these schemes if the market value rule applies to the share acquisition and income tax was chargeable on the gain on exercise; for example, if the option was exercised early.

Neither does the change have any effect in relation to disposals of shares acquired on the exercise of options on or after 10 April 2003 where section 144ZA TCGA provides that the market value rule does not displace the consideration given when an option is exercised after 9 April 2003.

Those affected by the change may need to make or amend a Self Assessment return or loss claim provided they are in time to do so.

For full details of the change in treatment, see http://www.hmrc.gov.uk/briefs/cgt/brief3009.htm.