Share Options + Residency

rubberduckey

Any advise would be appreciated


I have share options that vest in July of 2005. Of this amount, I realise that 42% of the appreciation has to be paid to the revenue commissioners. However I am also planning on taking 6 months+ to travel around the world. My question is this.
If I acquire and dispose of my shares in 2006, but do not spend more than 6 months in Ireland during that tax year. What tax am I liable for??

antoinolachtnai

My view is that what you have in mind might work, however you would need to plan it in a tax-friendly manner.

If you exercise the option during 2005, I think you will be liable for the tax when you sell the shares, no matter where you are tax-resident when you actually sell them.

You will have to exercise the option during 2006.

Even this may not work. The revenue may decide to treat the option as deferred income rather than as a gain. If this is the case, then you will probably have to pay the tax anyway.

This is not a straightforward case. A trip to the accountant is probably in order.

a_ominous

Choose your accountant wisely. I got cr@p advise from one I spoke to.
I had options in one company, had to pay about 15K in tax. Really hurt. I had to work damn hard for that. Paid tax at 42% income tax. options are not treated as capital gains because you have not taken any risk and invested money. Not sure that the outside-the-state-for-90-days will do you any good, but worth looking into. What might be more useful is that you will have tax free allowances for 2006 and exercising the options then with no/little income could allow you to pay tax at 20% or no tax at all depending on what the shares are worth.
Rather than ask an accountant, you could just ring up Revenue and ask them directly!

rubberduckey

Thanks for feedback guys, I have contacted revenue as well to see what they suggest.

Sympathise with your 15k tax bill, ouch!!! paying tax @42% would really hurt.

Unfortunately I guess neither of us can go ala JP McManus/Dennis O'Brien and be tax exiles!!!

Still I want to explore every avenue that may reduce my tax liability, so any other ideas would be most apprerciated.

Cheers

MJD

Relevant Tax on a Share Option is payable on the gain (i.e. the difference between the market price of the shares and the price
actually paid) and calculated at the higher rate of income tax in force when the option is exercised. If a person considers
that his entire tax liability for the year will be chargeable at the standard rate of tax, a written application can be made
to the Inspector of Taxes dealing with the person’s tax affairs seeking approval to pay Relevant Tax on a Share Option at
the standard rate, which must be obtained in advance of making payment at the standard rate of tax. Relevant Tax on a
Share Option will be set against the individuals total income tax liability for the year.
A PAYE employee who exercises a share option and pays Relevant Tax on a Share Option will be registered as a self
assessed person for the tax year in which the share option is exercised. A Return of Income will be forwarded after the end of
the tax year and the Return should be completed with details of all taxable income for the tax year, including the gain on the
share option.