If you are given shares or shares options by your employer you will generally need to pay tax twice:
- Income Tax when you receive the shares
- Capital Gains Tax (CGT) when you sell them.
For a lot of people, being given shares is the first time they will need to file a tax return directly with the Revenue Commissioners. Sometimes, employees assume their broker or employer has looked after paying all of their taxes and filing the necessary returns however this is not the case. The onus is on you to calculate the tax and file the necessary tax returns.
Remember, your employer is obliged to provide the Revenue Commissioners with a return on their share schemes every year so your details are in the system and unpaid taxes will be pursued.
Share Award Schemes and Share Option Schemes
Generally share incentive schemes fall in to two categories – Share Award Schemes and Share Option Schemes. Read on to find out more.
Share awards are when your employer gives you shares in the company as part of a bonus or remuneration package.
The good news for employees is that although you still have to pay income tax when you receive the shares, your employer will have looked after the payment of this tax for you through your payslip, so one step has already been taken care of.
Once you decide to sell your shares you have to pay another tax in the form of Capital Gains Tax - your employer will not deal with this element. In Ireland this is currently charged at 33% of the gain and the first €1,270 of a gain in a tax year is exempt from CGT. It is your responsibility to pay the CGT and file the appropriate tax returns on time - or have a professional do it for you.
The basic principal here is that you need to determine what your gain was, i.e. you pay tax on the difference between the value of the shares when you received them and the value of the shares when you sell them.
Remember, even if you do not make a gain you need still to file a return to Revenue.
Share options are a benefit granted to employees. A Share Option allows the employee to purchase shares in a company at a set rate which is often below the current market value.
You need to be aware of two tax events in relation to share options:
1. Income tax, USC and PRSI when you buy the shares
2. Capital Gains Tax when you sell the shares.
Income tax, USC and PRSI when buy the shares:
Firstly, you (not your employer in this case) will need to calculate the income tax you owe and file the necessary tax returns. The amount of tax that you pay is calculated on the difference between the option price you are offered by your employer and the market value of the shares at the time of purchase. It is really important to note that the taxes associated with buying the shares must be paid over to Revenue within 30 days of buying the shares.
Jane received 10 share options on 1 March 2019.
She has an option to buy at €300 per share when market value was €500 on 1 March 2019.
She buys the shares immediately.
She needs to pay any tax due by 31 March 2019.
The difference between the option price and market value price is €200. Jane buys 10 shares so needs to pay income tax, USC and PRSI on €2,000.
Capital Gains Tax when you sell the shares
When you sell your shares you will then be liable to CGT on any gain arising. The gain is calculated as the difference between sales proceeds and the market value of shares at date of purchase minus exemptions. When you need to file the CGT return is dictated by when in the year you sold your shares.
Sometimes people will buy and sell on the same day and sometimes people will buy options but hold on to them for a time in the hope the share price will increase…
Whatever your situation with shares and share options, your local TaxAssist Accountant can meet with you and prepare your tax returns. We will ensure you claim any reliefs due to you. By giving you a fixed, competitive price, we can take the worry away when it comes to tax returns.