ACCA Advanced Taxation (ATX) Practice Exam

Is it true that there will be only an Income Tax (IT) charge for exercising shares in a non-tax advantaged scheme?

1. True

2. False

3. Only if the shares have a low market value

4. Only in exempt cases

The correct answer is: False

In the context of exercising shares in a non-tax advantaged scheme, the implication that there could be more than just an Income Tax charge is indeed valid. In a non-tax advantaged scheme, when an employee exercises options to acquire shares, various tax implications can arise, not solely limited to Income Tax. For instance, depending on the structure of the scheme and the nature of the shares, Capital Gains Tax (CGT) could also be relevant at the point of sale of the shares. If the share price appreciates after exercise, the employee may face a CGT charge on the gain when they later sell the shares. Moreover, there may be National Insurance Contributions (NIC) involved at the point of exercise, further complicating the tax obligations related to such transactions. Therefore, it's important to recognize that while an Income Tax charge is a significant consideration, it is not the only potential tax liability when exercising shares in a non-tax advantaged scheme. This understanding is crucial for anyone dealing with share options and equity compensation, as it highlights the need to consider the full scope of tax implications beyond the immediate Income Tax charge.