Keep Stock Options or use as AVC payment ?

[RebelC]

Hi,

I have a number of stock options that will vest over the coming years, but can only be exercised up until 2030, when I still intend to be working - currently just turned 50.

I have a company pension plan and I also put additional contributions (some regular, some lump sum) into various non-standard PRSAs - invested in ETFs intended for long-term hold (QQQ)

I'm trying to determine if it's better to sell some of my stock options and put the proceeds into my PRSA, to maximise the amount contributions that can avail of the highest rate of tax. Or hold all of the stock options and pay CGT when I exercise them.

If we consider that the ETF and the stock both appreciate identically over the next 10 years, which is the better option, considering the tax implications of each approach ?

TIA,
RebelC

 

[MugsGame]

It might be different for your scheme, but my understanding is

• the difference between the strike price and stock price on day of exercise is liable for income tax.
• subsequent gains between option exercise and stock sale are liable for CGT (obviously any dividends are liable for income tax).

I wouldn't let the tax tail wag the dog, but all other things being equal it should be far more efficient to exercise your options and sell the stock now (the income tax due on the options should be offset by tax relief on the pension contribution, although you will still owe PRSI and USC), and then put the money inside your pension where it can grow tax free (avoiding CGT or income tax you'd otherwise have on the stock/stock option appreciation).

A far better reason to exercise and sell is diversification away from your employer.