Tax on Non Qualifying Stock Options for same day transaction

Hello, I am the owner of a number of non qualifying stock options for a private US business. While I understand that I will be liable to pay income tax on the difference between the share's fair market value and option exercise price upon exercise, and then capital gains tax on any profit when selling the share, I would like to better understand how this applies to a private secondary sale, where I am able to exercise and sell at the same time. Let's imagine strike price (exercise price) for my options is $1 and the current FMV is $2. The company has arranged a private secondary sale, with an investor who agreed to pay $5 per share. If I were to exercise my options the day before the sale, I would be paying income tax on $1 per share ($2 - $1). The next day, I would sell each share for $5, thus paying CGT on $3 per share. Is this also the case if I were to exercise and sell at the same time? Will the income tax still be calculated on the share's Fair Market Value (FMV) - so same calculations as above -, or will the entire sale be treated as income tax at this point (so $4 income tax per share)? Is there any guidance there? Many thanks

Hi Niccolo Zapponi,
Please refer to guidance on the charge to income tax on exercise, HS305, and charge to CGT on disposal, HS287.
On basic principles the calculation of the IT charge on exercise would not change if the shares were disposed of on the same day.
However if there are any forfeit provisions, restrictions or disposals for more than Market Value you will need to review the appropriate
guidance in the Employment Related Securities Manual regarding the tax treatment.
Employment Related Securities Manual
Thank you.

Many thanks. So, even in the case of a cashless exercise, the Income Tax charge will be calculated against the Market Value, despite the fact that an investor may agree to purchase it at a higher price on that day? I believe the critical difference here is that even though the investor may purchase my shares at a higher price, all other shares will retain their Market Value, and such shares will continue to have the same market value from the next day onwards. The definition of Market Value is what is critical here. Any further clarifications would be greatly appreciated.

Hi,

Please have a look at CG16200 onwards for guidance on the meaning of market value.  

CG16200 - Assets: valuation

Thank you.