Why do you have to pay tax on shares, which were involved in take over and not selling them, 60% tax.?

Question

I have a lot of shares in a company which has just been taken over, i have just been told today that i will have to pay a 6 figure sum in CGT not happy, why am i being robbed of my money, i worked hard to get this amount of shares, i should not be charged for something that i did not want, i did not want to sell.

Answer 1

Can you give more details as I don't understand what you are referring to.

In the UK where a company is taken over by another you may receive cash, shares or a mixture of both. (I'll come to loan notes later)

If you receive all cash then this is a disposal for capital gains tax and the usual rules apply. The maximum tax take is 40% of the gain but is usually lower because of taper relief and the annual exemption.

If you receive just shares in the new company then there is no disposal for CGT. The new shares are deemed to have cost the same as the old shares did and tax is payable when the new shares are sold.

Where there is a mixture then tax is only paid on the part of the gain represented by the cash received.

Many takeovers are now structured so that you can have part of your holding turned into loan notes. Some of these can be cashed in each year. The idea is that the gain you make each year is covered by your annual exemption, thus enabling you to avoid CGT.

Answer 2

A Capital Gain will only arise when you dispose of the shares, and then only on the gain (i.e. profit) you made. The highest tax rate in the UK is 40%, so if somebody has told you it is 60% then they are either winding you up or clueless.

As already mentioned this may be a share option. If so, then it is treated differently and they will be liable to PAYE and National Insurance in a similar way to your salary. That said, that over-simplifies it as a charge will not always arise for either (or both), and in some cases a further charge can arise.

I think you need expert advice. Either contact the tax office or an accountant. But share options are a specialised area, and it could be hard to find out the right answer even from them.

Answer 3

were you given the shares as part of a share option? or did you buy them as part of a share saving scheme?

you certainly wont have to pay 60% tax on them, what they are probably doing is deducting the tax via your payroll as part of a share option agreement at your highest tax band, so if you fall into the 40% band (salary over £39825 07/08) then they will tax the difference between the purchase price per the share option and the sales proceeds at 40%.

I assume you complete a tax return, so on this return the share option pages will be completed with these details and how much tax was deducted etc... and then the Capital Gains Pages will be completed which will take into account your annual exemption of £9200 for 07/08. this will then calculate the tax due and offset against the tax paid. you may get a refund.

best bet is to pop along to a local accountant and ask for their advise or even get them to complete the tax return for a few hundred quid.