UK stock option tax
In the UK, options aren’t taxed when they’re granted or fully vested. Instead, taxation happens at the point of exercise.
You pay income tax and national insurance contributions (NICs) on the difference between the strike price and the share price
example¶
| shares | share price | total | |
|---|---|---|---|
| 153,125 | $0.115891 | $17,745 | paid |
| 153,125 | $0.35 | $49,000 | |
| profit | $31,255 | ||
| income tax | $14,000 | paid | |
| total paid | $31,700 | paid total |
You’re granted 153,125 shares at $0.115891 per share. Total $17,745
The stock increases in value to 0.35/share (total $49k)
you pay the exercise cost, 17k.
this is paid from taxed money, so a hidden tax cost of 45% $7,985
So you made $31,254 profit, even though you can’t sell the shares until IPO.
You pay 45% income tax on $31,254.2 = $14k
spent so far $17,7k + 14k tax = $31,7k
you also pay National Insurance on this. 2%
no IPO¶
loss $31,700 = £25k
IPO¶
let’s say no increase in value
spent $31,7k = £25k
capital gains¶
capital gains allowance first £6,000
$49 = £38.7k
£38.7k - £6k = £32.7k
when you sell the stock, 20% capital gain tax on £38.7k=£7,740
spent total £32,740
profit £38,710 - £32,740 = £6k
let’s say increase value, then it’s all profit with 20% tax