Does this seem right
 

I've got a some questions for all those financial types and rich people out there...

I'm not rich, but I do work hard, and have been rewarded by building up a fair few stock options in my company over the years. A couple of weeks ago I decided to exercise a block of these options 'cos Mrs Jools has been off work for a year now through ill health and times is 'ard. First time I've ever exercised any and so I'm new to it all, however, the sums just don't seem to add up.

To make it simple I've rounded the numbers, but very roughly the situation goes something like this. The options are for a US based company, so I opened an account with the US based stock broker who deals with this on employees behalf.

I had a block of 300 options that were granted to me at $18 each. I exercised them at a market price of $38, as I say the numbers are rounded but almost exactly $20 'profit' per share = $6000. Brokers charges for the sale were $35.

The broker then converts that dollar sum into sterling, by arrangment with the UK tax authorities they deduct 40% at source and wire me the proceeds (why the wired proceeds then take 10 days to be credited to my account is another story). No tax is liable in the US because I've signed and submitted my W8-BEN form to state that I'm not a US citizen.

Anyway. By my sums I should have been getting $6000 x exchange rate = £3200-ish - 40% tax (approx 1200) = net sum of approx £2000.

A transfer arrived in my bank today for approx £1500. Where has the other £500 gone ???

OK, I know that these sums are only rough calculations and I know that I'm not going to get the listed exchange rate when the broker or bank does the dollar/pound conversion, but even so it shouldn't eat up £500 should it.

My bank have confirmed that nobody this end takes a slice, they just credit my account with the funds that were wired. I'm naturally going to phone the broker, but since I'm green to all this are there any obvious questions I should ask (apart from where's my effin cash)?

none what so ever all adds up perfectly according to your figs. i would check the exercise price was 38 and you were not quoted a 'mid price' and also check their exchange rate, but cant see how it would be out that much.

Jools,

Did you get the schedule of charges in writing from the US broker? If so you should be able to take him to task on that basis. 25% of net proceeds is a hell of a lot of commission to take

check what rate they convert at.
check if they charge a funds transfer charge
check if they charge an administration charge for tax deducation activity

Ditto,

I'd want talking through the brokers calcs with the numbers, someone somewhere has had a breakfast, dinner and tea out of the deal,

Theres some hidden charges, finger trouble or somemat similar somewhere in the chain.

Ray,

Make sure the bank has not added a "negotiation" fee, some of them will and then deny it!

More than likely you paid some sort of "income" tax or lost out in the exchange/tax rate ? 4D

I don't know anything about share option schemes really but thinking out loud, did you own the shares outright or were they still being held in a fund by your company? If you did get the share allocation at a preferential rate in the first place that was dependant upon you holding them for a fixed period (eg 5 years), you may have lost that discount by cashing them in early. i.e. you have now forfeited that discount and effectively had to pay the market rate prevailing at the time that they were allocated to you. So your profit of $20 per share is reduced because you hadn't qualified for the initial discount by cashing them in early.

Other than that, I can't come up with any reason for the missing £500.

How's your cold today, Jools? Have you got a headache now?

Looks like a screw up to me.

The only think I could think it might be is if the broker account requires a minimum balance to be held (eg $1,000 which would correspond to about £500).

Either way, a call to the broker should sort it out.

Depends if you paid tax when they were granted to you really. If not then they would probably be deducting 22% tax on the entire proceeds.....

....see if that would work out to the missing £500

Although re-reading your post appears they are only passing the profit to you....

What Oz said ... he's my accountant :)

Jools, I did exactly what you did a few years ago (US company an' all) and I got the full proceeds (i.e. profit), actually I didn't even get tax deducted, I had to account for that to the Revenue later.

Sounds like a screw up to me.

BC

Thanks for your help everybody, just to clarify a few things that people have asked.

The options are all fully vested now (25% per year over 4 years) so I 'own' them all without any time restriction. The price that I sold them at was confirmed as $37.994 (see, I told you it was as near to $38 as to make no difference). The schedule of brokers charges is very simple and their fees are nowhere near £500 - in fact less than $100.

I have two types of stock option 'approved' and 'unapproved'. The approved ones mean that I have already paid tax on them and I am not liable for any further tax, the unapproved ones mean that I pay 40% tax on the difference between the grant price and the sale price. These were a block of unapproved ones, hence the 40% tax.

The bank swear that no negotiation fee is applied (I've been through that before when someone sent me a dollar cheque).

It all confirms to me that someone, somewhere has cocked up.

I've got a cold at the moment, and unwisely went training last night, so I was too cream crackered to call the broker, but I will now I've got a bit more knowledge.

Ta all

Jools, if you wanted to email me full details I am happy to look at it for ya (free of course).... u2u me if you do

Well, I've found out what the score is....

When I worked 'in the UK' all the stock options I got were approved (not much use to me because the share price today is nowhere near the dizzy heights of the dot com bubble days so they're all underwater)

When I started working for a World wide team, reporting to managers based in Europe or the US, all the options were unapproved.

This particular block of options was granted after April 1st 2003 which means that at exercise I'm liable to pay, get this...Income tax at the higher rate, Employees National Insurance contributions, plus I'm also liable for Employers National Insurance contributions.

So I get to give the chancellor 48.6% of the gross amount :flame:

Is it feckin worth it :mad:

Jools, it could be worse - just listen to "Taxman" by the Beatles (it's on Revolver), George Harrison's rant about paying 95% top rate tax..."it's one for you, nineteen for me...I'm the Taxman"

BC

At least you're making enough contribution on national insurance.

I opened an ominous letter from HMC&E last night that said because there is a £7.12 shortfall on the national insurance I paid for 2004/05, I may not be eligible for a full state pension when I retire.

I think I'd better start hoarding tins of catfood...

Don't worry Chi, there won't be a state pension by the time we retire!

The broker should provide you with a statement explaining how the figures stack up. Whenever I have done this in the past they do it exactly as you have calculated but without the conversion to Sterling, so they would take your $20 profit per share, deduct their fees + tax at 40% then send me a dollar cheque for the balance. It was then up to me to bank the cheque at whatever rate I negotiated with the bank, and remember that the rate is negotiable. The exchange rates quoted by banks are for the holiday maker changing a few hundred quid. When you start talking tens of thousands you may be surpised at the rates you can get.

Why? Are they scrapping it next year? :D

More than likely. All NI will go to Tony Blair retirement fund...

I'm relying on a mouldy collection of old superbike mags and some Beano annuals as a pension plan. :lol:

Do I need to see an IFA or a Doctor?

Ray.

PS Jools, at least ya know it was "legit" rather than some slight of calculator!