Tax due on foreign exchange element of share option program?

Question

This is quite complicated and to be honest I'm not really expecting anyone to know the answer, but I thought it would be worth asking.

Five years ago my (UK) employer's (French) parent company offered an employee share option scheme (the scheme was unapproved by HMRC). There were two possibilities for investment, the one I took up had a limited investment amount but a guarantee of your capital back after 5 years if the share price had not risen in that time.

I invested 1000 Euros, which I paid as a SWIFT payment from my UK bank account. After 5 years the share price had fallen and I duly received back my 1000 Euros into the same bank account. Due to exchange rate variation between then and now I actually made about £150 on the transaction.

The (UK specific) paperwork for the scheme says that if no gain was made on the share price, the act of getting your capital back is treated for tax purposes as "cash cancellation of unapproved share options" and no tax is due, however there is a reporting obligation and it tells me which box on my tax return I should put the details in.

What isn't clear to me is whether HMRC will treat it as 1000 Euros invested, 1000 Euros received back = no tax due; or £600 invested, £850 received back = tax due (and in this case would it be income tax or capital gains tax?)

If I don't get an answer here I'll ring HMRC and ask them, probably when I do this year's return. I'm just curious as to whether anyone knows the answer now :-)

Answer 1

After a long time oh hold with HMRC and being passed up and up through the layers, I eventually got the answer: they aren't sure! They asked me to write all the details in the "Additional information" box on the return so they can look at it when I've submitted it. They thought, however, that it would count as capital gains (and therefore be well within the personal threshold).