I have vested share options in a small company because I joined when it was an early stage start up. The options are in an EMI (Employee Management Incentive) scheme. The company is not planning to exit for several years and there is at least one more round of investment planned.
I know the standard advice is to wait until a company exits before exercising your share options because then you can exercise and sell in almost a single transaction and therefore know exactly what the cost of the investment is, the gain and whether it is even worthwhile.
Given that there is another round of investment to come and the rules for the share options scheme could be changed again I feel there is some advantage in exercising my options now (to get the paper shares and have them safe in my possession). Then I would sell them later after the company exits.
I actually asked the person who runs the share options scheme to go ahead with this plan but they told me it was not possible. This person and other senior people have since indicated that the tax implications to the individual are complicated and the tax burden would wipe out a lot of the benefit.
However, from all the information I have found about UK EMI schemes I would only be liable for Capital Gains Tax when I sell the shares and even that would be at a reduced rate. The only exception I can find is that if I was given a discount on the market price, but my understanding is that the strike price was the market value at the time.
There is a lot about this situation I don't understand and I am not sure the advice I have received is correct.
Would it be correct to say that the only tax due would be CGT on the difference between the strike price and market value when the options are exercised and then CGT again when you sell the shares at the end?