Tax on gifted shares to employee/director

[MattDigger]

Hi, if I give shares valued at £ 50k to an employee/director I assume they have to pay the income tax etc on the BIK. When they come to sell the shares at a later date, are they valued as having been procured at £ 0 or £ 50k? Ie, do they have to pay the tax twice? Once as income tax, then once again as a capital gain? Thanks!

 

[Paul Kelly ICHYB]

Look at share options rather than just straight shares. Not only financially rewarding, but also acts as a loyalty scheme.

 

[MattDigger]

Thanks Paul, they are an option (ha!), but both giver and receiver prefer straight shares as had issues with option complications in the past when i sold a company. V challenging.

 

[syedsheraz]

Hi, if I give shares valued at £ 50k to an employee/director I assume they have to pay the income tax etc on the BIK. When they come to sell the shares at a later date, are they valued as having been procured at £ 0 or £ 50k? Ie, do they have to pay the tax twice? Once as income tax, then once again as a capital gain? Thanks!

You’re correct that if you give shares to an employee or director, the benefit is treated as a Benefit in Kind (BIK), so income tax (and NICs) is due on the market value at the time of the award in your example, £50k. When the employee later sells the shares, Capital Gains Tax (CGT) is calculated on the gain above the market value, not from zero. So if they sell the shares for more than £50k, they pay CGT only on the increase. Effectively, the £50k has already been taxed as income, and CGT only applies to the growth after that point so it’s not being taxed twice.

 

[MattDigger]

You’re correct that if you give shares to an employee or director, the benefit is treated as a Benefit in Kind (BIK), so income tax (and NICs) is due on the market value at the time of the award in your example, £50k. When the employee later sells the shares, Capital Gains Tax (CGT) is calculated on the gain above the market value, not from zero. So if they sell the shares for more than £50k, they pay CGT only on the increase. Effectively, the £50k has already been taxed as income, and CGT only applies to the growth after that point so it’s not being taxed twice.

Thanks mike, what I have realised after reading your post, is that despite giving him the £ 50k in shares, I will have to pay CGT myself as the value has increased from £ 1 to £ 50k! Arrgh.

 

[Newchodge]

Thanks mike, what I have realised after reading your post, is that despite giving him the £ 50k in shares, I will have to pay CGT myself as the value has increased from £ 1 to £ 50k! Arrgh.

Have you thought where the shares come from? How many shares have been issued? If you hold 1 share you would have to give that share to them and hold none yourself. If you hold 10 shares and give them 5 of them you will have a deadlock for voting.