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Capital Gains and Sipp Question

Hello

I work in the UK for a US company from which I receive a grant of shares each year. The grants are placed into a US online brokerage and vest (i.e. become sellable) over a 5 year period. When a tranche of shares vest I pay UK income tax on the value of the shares at the vest date - i.e. I only receive 60% of the shares. The shares do not qualify for any employee share scheme unfortunately.

In order to reduce my income tax liability, I'd like to move these shares into my Sipp which is managed by Hargreaves Lansdown. I'm in the process of transferring the vested shares into my Fund and Share account with HL from where I'll move some of them into my Sipp. The shares in the US brokerage were all broken down into individual tranches (or positions as I think they're called) so that the value of the shares at the time I received them is readily identifiable. However, I'm led to believe that once they get transferred into my HL account I just have a single block of shares - and that's were I get confused.

In order to move shares into a Sipp it's necessary to sell and re-buy them - a so called "bed-and-sipp" and at that point I am potentially making a capital gain - in fact quite a decent gain in the case of some of the shares. The question is, how do I determine what my gain is when I have a large amorphous block of shares from a variety of different grants and vesting schedules? Surely the shares must be kept identifiable within my HL account - have I been misinformed by the HL helpline? Btw, won't the same considerations apply with regard to an ISA?

Thanks for any help Thomas

Reply to
Thomas
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For normal capital gains purposes it hasn't been necessary to identify individual shares since taper relief was abolished. They all form part of section 104 holding. I don't know how the anti-bed and breakfast rules apply in your case, but my guess would be that they don't apply, as applying them would seem to avoid CGT. I also don't know the precise rules for transfers into SIPPs.

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Reply to
David Woolley

Thanks, that was really really helpful - if not quite what I was hoping for :-(

In my case the average price at aquisition comes out at about 50% of current price. One of my reasons for placing these shares into my Sipp was to reduce my taxable income below the 60% level. The problem (and yes it's a nice problem to have) is that I'm now in danger of incurring a 20% CGT bill on anything I sell above ?10,900 (20% being 100% growth x 40% CGT rate). Sounds like a careful calculation will be required.

I wonder. Would it be acceptable (to the taxman that is) to give some shares to my wife for her to sell using her CGT allownance? Actually I'm rapidly learning that the general rule in these cases is that the taxman always wins, so I suspect the answer is that transfering shares to my wife would count as disposing of those shares at market value? Any other thoughts on how CGT can be (legally) avoided?

Thanks again Thomas

Reply to
Thomas

Replying to my own post!

It seems I was being unfair to the taxman since you can give shares to your wife without incurring CGT! Now, can that spouse transfer those shares and give the proceeds straight back to her husband without incurring the wrath of the taxman?

Regards Thomas

Reply to
Thomas

Ok, so it seems like the basic rule (the taxman always wins) does indeed still apply :-( The shares transferred to a receiving spouse are treated as having been aquired at the same time and price as the gifting spouse. So you can take advantage of a spouse's cgt allowance, but you can't reset the clock on the shares - makes sense I suppose. Oh, and I see that CGT rates are 18% and 28% which is a bit better than I had thought.

Thomas

Reply to
Thomas

You say (later) that these are taxed as a capital gain but are you sure the y are not taxed as income? I also work in the UK for a company that gives stock options (maybe not what you have) which vest in tranches over a 5 ye ar period and HMRC tax these as income.

Robert

Reply to
RobertL

I also had some options which were granted about 5 years ago - the market price promptly dropped below the strike price making them worthless until recently. When was able to exercise the options the residue of the sale was indeed treated as pure income.

However, for the most part, our company issues restricted stock units which vest in tranches - an incentive to keep you in the company. When a tranche vests (i.e. becomes sellable) it is treated as income at the current market price (the cost basis). The way it works with my company is that a fraction of the vested shares equal to your marginal tax rate is withheld as income tax. So if I have 100 shares vesting then I only receive 60 shares - the value of the other 40 being payed to HMRC. The point is though that when I come to sell the shares, any increase in value is then treated as a capital gain. In my case the company's shares have increased significantly over recent years so the gain is quite significant.

Hth

Thomas

Reply to
Thomas

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