We thought it would be helpful to remind you that HMRC’s rules on how to calculate the value of listed shares and securities for income tax purposes changed on 6 April 2015.
Previously, shares listed on the main market of the London Stock Exchange or shares on a foreign recognised stock exchange were valued on a ‘quarter up price’. This is the lowest recorded price of that day plus a quarter of the difference between the day’s lowest and highest recorded prices.
This method has now been replaced by taking the value of shares as the ‘closing mid-market price’ (the price half-way between the closing bid and offer prices). The market value of a share will be determined by reference to the ‘closing mid-market price’ on the relevant day where the London Stock Exchange is open. If the London Stock Exchange is not open on the relevant date, the ‘closing mid-market price’ on the previous dealing day should be used.
Although these rules have changed, HMRC has confirmed that it will continue its concessionary treatment for share plan vestings. Where a share award vests or an option is exercised and the shares acquired are sold on the vesting date/date of exercise (or the following day) employers will still be able to use the actual sale price achieved for those shares for the purpose of calculating the market value of the shares. This means that most employers can continue their existing practices for valuing shares on vesting/exercise and so match the cash received on sale with the tax liability.
However, employers who net settle their share awards will need to ensure that their calculations are updated to reflect the ‘closing mid-market price’ rather than the ‘quarter up price’.