ACCA Advanced Taxation (ATX) Practice Exam

In a tax-advantaged share option scheme, what constitutes the 'cost' figure when selling shares?

1. The cost of the shares only

2. The price paid for the share options only

3. The cost of the shares plus any additional options price paid

4. The market value at the time of sale

The correct answer is: The cost of the shares plus any additional options price paid

In a tax-advantaged share option scheme, the 'cost' figure when selling shares is determined by the cost of acquiring the shares along with any additional amount paid for the share options. When a participant exercises their share options, they typically pay a certain price to convert their options into shares. This price is considered part of the cost basis when those shares are later sold. Therefore, the total cost basis includes both the value of the shares acquired and any premium paid for the share options themselves. This comprehensive understanding reflects the reality that simply considering either the cost of the shares or the price of the options in isolation does not provide an accurate picture of the total investment made. Thus, accounting for both components ensures an accurate calculation of gains or losses when the shares are eventually sold, aligning with tax regulations that seek to provide clarity on the actual economic investment into the shares.