ERSM80040 - Disposals for more than Market Value

Example: stop-loss

Maggie Joshi buys 100 shares in her employer for £5 each on 1 January 2005 on condition that she does not sell them for three years. Her employer guarantees that she will not get less than £5 for each of them if she sells them at any time during a two-year period commencing on 1 January 2008.

Maggie sells the shares on 30 September 2008 through a broker for only £4 each, the market price. Her employer makes up the difference. Her sale expenses are £30.

Applying the formula CD – MV – DA:

CD = £400 (£4 x 100 from sale) + £100 (£1 x 100 from employer) = £500.

MV = £400 market value of shares

DA = £30 expenses of sale

So CD – MV – DA = £500 - £400 - £30 = £70 charged as employment income.