Help! Income tax on startup option exercise is gonna break me...

[BeverJacon]

TL;DR...what is the best country to exercise US stock options in?

I'm finally about to get a stock options grant agreement from the startup I joined over 2 years ago next week, with accelerated vesting from the time I joined, and a strike price reflective of the then value of the company. The latest 409a valuation was delayed for a few months, and it just came through - at $22 million.

The scheme would be an"Unapproved share options"

From the multiple UK sources I've read recently*, it seems that the tax in the case of "Unapproved share options" would arise on exercise rather than the grant, on the spread between the strike price and the Actual Market Value (AMV).

Now...does that mean the Actual Market Value (AMV) is $22 million?

And would that mean that my tax liability on exercise, if I were to exercise now, would be:

Actual market value of 50,000 shares (out of 1 million shares with $22 million) = $ 1,100,000

Tax liability on this: 45% on anything above 150,000 pounds, which would put my tax liability at a whooping 450,000?

So in that case, wouldn't it make sense to sign as a Limited Company, and only 19% income tax?

Also - I've been a UK tax resident for the past 7 years and I have a settled status here, but I'm a Polish citizen. From what I've read, there's no tax liability on exercise in Poland, only on the actual sale of such assets.

Would it then make sense for me to return to my home country for the exercise (and the subsequent 5 years as I wouldn't be able to go back to the UK afterwards)?

[legardaas]

I'm not in the UK and certainly no tax expert, but I think taxes would be incurred when the options are exercised and sold -- until then, I'd guess that it would all be unrealized gains. Perhaps @CareCPA can chime in if this were a US-based scenario.

[Rohambekaj]

I just stumbled upon this thread, and I think I might have some helpful insights. I read an article recently about founders shares and how they can impact tax liabilities, so that could be worth checking out. As for your question, it sounds like the tax liability on exercise could be quite high in the UK, so signing as a Limited Company might be a good idea to lower your income tax to 19%. However, if there's no tax liability on exercise in Poland, it might make more sense for you to exercise your options there instead. Of course, it's important to consider the long-term implications of returning to your home country for the exercise and the subsequent 5 years.