Sir: The effect of the Chancellor's announcement on the taxation of share options is not just to increase the tax bill of middle manager ("Middle ranks hit hardest", 18 July) but to tax them on gains they may never see. Option holders will now pay income tax on the value of the difference between the option price and the price of the shares on the day the option is exercised.
The holder will be unfairly penalised if the price of the shares subsequently falls before he sells them (perhaps to meet the new tax bill). He will have paid income tax on shares valued at a higher price than he eventually sells them for.
Furthermore, these option schemes are not just aimed at managers. Several companies (Asda, Wellcome, National Home Loans) have offered options to all employees. The Government has encouraged wider employee share ownership. This change will have the side effect of forcing employees to sell shares so that they can meet their tax bill and avoid the risk of the share price falling and landing them with a tax bill for an unrealised paper gain. The Chancellor could avoid these problems by exempting all-employee discretionary option schemes from the changes.
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