Tax on employee shares

My girlfriend and I received employee shares from our company some years back, in 2017. I have subsequently left the company and received a promissory note for my shares (earning me 1% interest per year). My girlfriend still works there and has her employee shares. We received communication that there would be payment (for her shares and my promissory note) in the upcoming months. Based on information on HMRC website, the CGT is not payable on employee shares: https://www.gov.uk/government/publications/employee-share-and-security-schemes-and-capital-gains-tax-hs287-self-assessment-helpsheet/hs287-capital-gains-tax-and-employee-share-schemes-2021 My questions are: Do we need to declare the income we receive from the shares / promissory note to HMRC? Do we need to pay CGT (or other tax) from her shares or my promissory note - or from the interest it has earned me? Kind regards, Wojciech

Hi Wojciech,
As the promissory note is seen as a loan, please refer to:
HS296 Capital Gains Tax and Debts (2024)
Thank you. 

 

Thank you for your response. Three follow up questions: How would the promissory note / loan be taxed - given the interest would be approximately 1500 per year when it is paid to me, for around 8 years? I am a higher rate tax payer, which I understand has 500 tax free interest per year. So would it be approximately 8x(1500-500) = 8000 tax on the interest, no tax on the 'capital' from the employee shares? I also lended money to a friend approximately 5 years ago - the loan was never fully repaid, so I lost money. Am I able to offset the some of the interest gains by this irrecoverable debt? If so, are there some limits (e.g. how long ago would this need to happen so that I am still able to use it to offset current gains) and what would I need to submit to HMRC (the contract between us etc.)? How about the income from employee shares for my girlfriend? Does she need to declare it to HMRC / pay tax on it? Kind regards, Wojciech

Hi,
Most interest is now paid without deduction of tax.  
You declare the interest to HMRC whether in writing or a tax return.  
Please have a look at the guidance on helpsheet HS295: HS296 Capital Gains Tax and Debts (2024).  
Your girlfriend needs to declare her employee shares as the dividends are taxable.
Thank you.

Thank you. The guide however does not say what the interest calculation would be. In my example, the interest would be approximately 1500 per year over 8 years? I am a higher rate tax payer, which I understand has 500 tax free interest per year (and I had no interest income over those 8 years). So suppose I would receive interest payment of approximately £12,000, use the 8x£500 tax free allowance and paid interest of 40% on the £8,000 = £3,200 - is that correct? As for my girlfriend, she would not actually receive a dividend from her employee shares - it would be a disposal of shares, which according to the information should be tax free. Does that need to be declared and / or taxed?

Hi Wojciech
This forum is for general queries only and is intended to help you self-serve.
We are unable to provide specific advice tailored to individual circumstances. 
Please contact our helpline to help further:
Self Assessment: general enquiries
Thank you. 

 

Not HMRC...the interest allowance cannot be carried forward from year to year when unused, when the interest becomes receivable/available/received it is taxed in that year, with any allowance appropriate to that year once only, so, any allowance is once not x 8. Disposals of shares are liable to CGT in all circumstances (unless in an ISA), and are then subject to any appropriate claim/election so not sure why you think tax free? If the shares are liable to income tax (often the case on becoming available to the employee) they will be payrolled, if not there is no base cost on sale.

Yes, that is exactly the reason why I am asking. The general enquiries site you linked does not answer my question and based on guideline from HMRC: 'If you keep your shares in a SIP until you dispose of them, you will have no CGT to pay in respect of this disposal.'
That is why I am asking to confirm if this is correct, to make sure I pay the correct tax (in this case none, for employee shares).
Can you please confirm.

Hi Wojciech
We can you provide general advice in this forum.    
For an answer to a personalised question of this nature, you would need to use the contact options at: Self Assessment: general enquiries or seek professional advice.
Thank you.

HMRC Admin 13 - That is exactly what I am asking for, a general advice for the circumstances I described. The General enquiries you linked does not provide answer to my question and the professional I spoke to explained to me, that he cannot confirm 100% as HMRC is the ultimate arbiter. So can you please just confirm that the guideline I linked is correct - which states 'If you keep your shares in a SIP until you dispose of them, you will have no CGT to pay in respect of this disposal.' Clive Smaldon - Thank you for the explanation regarding the interest. With regards to your question, the guideline on HMRC website (https://www.gov.uk/government/publications/employee-share-and-security-schemes-and-capital-gains-tax-hs287-self-assessment-helpsheet/hs287-capital-gains-tax-and-employee-share-schemes-2021) states that the employee shares are exempt from CGT. So that is why I am asking for confirmation. And am struggling to get it. Thanks Wojciech

Hi Wojciech,
We cannot comment on any form of calculation/example or scenario, whether fact or fiction.
We can only point you the direction of the guidance, so that you can review the guidance and to allow you to make an informed decision.
 If, after that you still need advice, you need to employ the services of a financial adviser. 
Thank you.

Sorry I still feel there is a level of confusion here. I already explained that: 1. The guidance DOES NOT answer the question I have, not to a satisfactory level 2. I did ask an adviser, who confirmed that he cannot provide an authoritative advice on this topic, as it is HMRC making the decisions on taxes, not advisers. Can you please confirm - as a tax payer, I am expected to pay taxes. As a result of that, I am expecting the tax collector (HMRC) to provide guidance on what taxes need to be paid. Hope that clarifies. Please do not point me towards the guidance - it does not provide the answers I need, nor do financial advisers - it is HMRC making the decisions, so HMRC should explain. Thanks Wojciech

Hi ,
 

This forum is for guidance only and as such you will therefore need to contact HMRC direct for answers to specific questions on 0300 200 3300  . Thank you .

Thank you. That is exactly my point - I need a guidance whether or not the employee equities are exempt from CGT. Can you please answer that for me? The online guide says that they are - can you simply confirm that? https://www.gov.uk/government/publications/employee-share-and-security-schemes-and-capital-gains-tax-hs287-self-assessment-helpsheet/hs287-capital-gains-tax-and-employee-share-schemes-2021

Hi ,
 

We can only provide you with the guidance.  It is up to you to decide whether they are exempt or not.  Alternatively, you can seek the guidance of a financial professional, such as an accountant. Thank you .

Sorry how can it be up to me to decide? Isn't it HMRC who set the rules? Surely it should not be up to the taxpayers to decide whether their shares are exempt. I did seek a guidance from a professional advisor - his response was that I need to clarify with HMRC who are the decision makers in this case. That is why I am asking. Thanks

Hi
We are not permitted to make any decisions for you.  If we did make the decision for you and gave you the wrong answer, it would tarnish HMRC's reputation and potentially leave HMRC open to compensation claims etc.  If you employ the services of a professional adviser, such as an accountant, you are paying them to use their reputation and expertise to make the decision for you.