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My employer has granted me a number of share options under an EMI scheme. They also partnered with their brokers to allow us to exercise these options without needing to put up-front capital in to purchase the shares, instead the brokers would buy and sell them, keeping a small fee for doing so. Shortly before the end of the 2020/21 tax year, I made use of this facility to exercise a portion of my options. I owed income tax and national insurance on part of the profit, which my employer took care of in a normal PAYE pay slip. The remainder of the profit is a capital gain. The proceeds were paid to me in full into a joint account with my wife, leaving me to take care of the capital gains tax in my usual annual tax return.

This capital gain is higher than the 2020/21 personal allowance of £12,300, but less than twice that. With no other capital gains during the year, is there a way to also use my wife's personal allowance? If so, how should that be reported?

If it makes a difference, within days of receiving the money, a large portion was spent on a car in my wife's name, paid for from the same joint account - would using the money from the joint account here count as a gift?

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  • Why do you think you owe CGT at all, if the shares were sold immediately and you were taxed on the option value via PAYE? Aug 10, 2021 at 16:16
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    I thought the gain from selling the shares is what would trigger it? The income/PAYE was taxed on the difference between the grant price and exercise price, which were lower than the actual price of the shares. Aug 10, 2021 at 16:21
  • You should owe CGT on any gain between what you sold the shares for and what you already paid for through PAYE. If they were sold immediately wouldn't that be negligible? Aug 10, 2021 at 16:23
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    I've edited your question in a way that would have reduced my confusion, please feel free to edit further if it's not correct/clear to you. Aug 10, 2021 at 16:45
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    @GS-ApologisetoMonica It’s part of the EMI structure, you have to pay income tax / NI on the difference between grant price and exercise price, but not until you actually exercise the options, as opposed to having any liabilities at the point of the granting. Aug 10, 2021 at 20:44

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This is not an expert answer as I'm not personally familiar with the ins and outs of CGT, but I think it's probably too late now. You can transfer assets like shares to your spouse freely without changing the so-called "cost basis" of the shares, so if you had done that with half of them before selling them, you would each have owed CGT on your own halves. But as you sold them, you owe the CGT.

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  • Right, that makes sense. I think next time the opportunity comes I might see if the brokers can buy/sell enough to then cover buying more, and transferring those shares to me - will remove the need for the capital, but allows for more options with what to do with the resulting shares themselves. Aug 10, 2021 at 16:44
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For the future, you would need to dispose of (sell or simply gift) half the shares to your wife between the option being exercised and the shares being sold.

But perhaps you don't need to do a broker-driven sale half the shares to your wife. Perhaps you could simply gift half the shares in trust to your wife (i.e. you would hold half the shares on trust for your wife). This counts as a disposal at no gain and no loss. You need not even tell the broker (just a one page trust deed). Then your broker would sell all the shares, yours, plus your wife's (with you as trustee). Half the gain would be attributed to you, and half to your wife (who would have inherited your base price). Indeed you could construct a trust deed such that half the proceeds of all future vestings were to be held in trust by you for your wife, which would then achieve that automatically. You might want a lawyer to draw that up in case HMRC ever asked for evidence (unlikely).

There are a large number of confused comments about why there is any CGT to pay. Under UK law, for qualifying EMI options (unlike normal options), in most circumstances:

  • The difference between the exercise (strike) price and the market value at the time of grant is taxed as income, at the time of exercise. IE the tax on the grant of options at an undervalue is paid at exercise.
  • Upon exercise, the base price for CGT purposes is the market value at the time of grant (not the market value at the time of exercise). This means an immediate disposal may well yield a substantial capital gain (which is more favourable than a charge to income tax).

What one would normally do for CGT purposes would be to transfer half the assets (here EMI options) now to your wife. But you cannot do that firstly because the EMI option contract almost certainly prevents it, and secondly even if it did not, the EMI options would cease to be qualifying (one likely reason being that your wife presumably does not work for the same employer). This is why you would need to make the transfer between exercise and sale.

You should however check there are no other restrictions on transferring shares between you and your wife. For instance, your company may have an insider trading policy that restricts this to certain periods.

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