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Tax Headline Data / Stock Option Plan / United Kingdom

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Grant

  • There are no income or social security taxes.

Exercise

  • Income Tax is payable up to a maximum rate of 45%, withheld by the Local Company. Scotland has the ability to set its own Income Tax rates and so Scottish based residents may be subject to an alternative rate of Income Tax. 

  • Employee National Insurance is payable up to a maximum rate of 12%, withheld by the Local Company (capped). This rate is payable until a Participant reaches their 'upper earnings limit' for Employee National Insurance contributions.

  • Employee National Insurance is payable up to a maximum rate of 2%, withheld by the Local Company (uncapped). This rate is payable on all earnings above a Participant's 'upper earnings limit' for Employee National Insurance contributions.

  • Employer National Insurance is payable up to a maximum rate of 13.8%, payable by the Local Company (uncapped). With the prior agreement of the Participant (usually obtained at the time an Award is granted), it is permissible for the Participant to reimburse the Local Company for the Employer National Insurance contributions.

  • The taxable amount is the amount by which the market value of the shares on exercise exceeds the exercise price.

Sale

  • Capital Gains Tax is payable on the growth in value of the shares up to a maximum rate of 20%, payable by the Participant.

Other / Notes

Tax Advantaged Arrangements

There are tax-advantaged share plan arrangements available.  These include:

  • EMI Options - primarily aimed at smaller, growth companies, EMI options are not generally subject to tax on grant or exercise.
  • Company Share Option Plans - available to a wider number of companies, options granted under a Company Share Option Plan are not generally subject to tax on grant or exercise (provided that they are held for at least 3 years).
  • Sharesave - a special arrangement that must be made available to all UK employees and through which employees are granted options for which the exercise price is paid through a monthly savings contract.
  • Share Incentive Plan - a special arrangement that must be made available to all UK employees and through which employees can purchase shares from pre-tax salary and/or be awarded free shares tax-free (subject to annual limits).

In addition to providing tax advantages to the Participants, these arrangements may also reduce the amount of employer national insurance payable by the Local Company.

Dividends

Once a Participant has acquired shares in the Company, they will pay Income Tax on dividends received at a maximum rate of 38.1% (although, in limited circumstances, dividends paid by certain non-UK resident companies may be subject to higher rates of Income Tax if they are regarded as payments of interest).  Each Participant also has a small, annual tax-free allowance in respect of dividends.  The Income Tax is payable by the Participant and there are no withholding or reporting obligations for the Local Company.  There is no liability to pay either Employer or Employee National Insurance contributions. 

Corporate Tax Deduction

In relation to Awards that are settled in shares, the Local Company may be able to claim a statutory tax deduction in respect of the Awards to its employees.  This tax deduction does not require the Local Company to be recharged by the Company; it is a deemed deduction based on the value of the Awards at vesting/exercise.

In relation to Awards that are settled in cash, the Local Company may be able to claim a tax deduction.  In order to be able to claim this deduction, the cost will need to be recharged to the Local Company (under a written agreement).

Administration costs recharged (under a written agreement) to the Local Company may be deductible.

Unlisted Shares

If the shares of the Company are not listed on a stock exchange and if the shares are not 'readily convertible assets' at the applicable time:

  • there may be no withholding obligation for the Local Company (with the Income Tax being payable instead by the Participant under their self-assessment tax return); and
  • there may be no Employer or Employee National Insurance contributions to pay.

Apprenticeship Levy

If the amount of salary and benefits paid by the Local Company in the UK (Pay Bill) exceeds £3 million (GBP) (c. EUR €3,300,000) in a tax year, then there will also be a levy on the Local Company of 0.5%  of the Pay Bill, known as the Apprenticeship Levy.

National Insurance Contributions Increase

From April 2022 there will be an increase of 1.25% on both employee's and employer's National Insurance Contributions payable. There will also be a 1.25% surcharge on dividends earned from that time. 

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