Like the Sports Direct employees, we all like free cash. But is it free from the Taxman’s clutches?
In some unusually good news, thousands of staff at discount leisure wear store Sports Direct are now in line for a metric fuckton lot of cash after its 2011 profits are expected to be up by 20%
About 2,000 full-time employees will now become entitled to share options worth a total of £44,370 each, which is more than double the average Sports Direct annual salary. The payout applies to general store staff as well as managers and head-office employees, but the cynics in us wonder, however, how many of the average paid Sport Direct workers will get their hands on the cash.
Under the terms of the scheme, staff can cash in a quarter of the shares in July 2012 and the remaining tranche a year later. The scheme is likely to be an approved share option plan, which means that, very broadly speaking, the employees may only need to pay capital gains tax at 18% or 28% if they withdraw and sell their shares and realise the cash. Assuming of course that the share price does not fall by that time.
But if you aren’t lucky enough to work for Sports Direct, surely there are other ways of getting a large cash injection? Well, as journalists for a certain now-defunct paper might know, there is always redundancy cash, or an elderly relative might pop their clogs and leave you some dough (particularly if you treat them to a Swiss holiday).
So can you keep your cash, or will the taxman want is share of your spoils? Well, as ever in tax, the answer is that it depends.
Genuine redundancy payments are tax-free to the extent that they fall within a £30,000 limit, and are completely national insurance free. This includes statutory redundancy pay (the minimum amount the Government says you have to get) and any discretionary amounts your employer chooses to give you. If you are allowed to keep a car, for example, the value of the car is included in the £30,000 limit. Note that payments made for unused holiday (for example) or payments in lieu of notice, ie broadly amounts stipulated in your contract of employment are not redundancy payments and are subject to income tax and national insurance through the payroll as normal.
If a relative, or a random stranger, gives you some kind of value while they are alive, be it in money or assets, there is not normally an immediate charge to inheritance tax. There is no income tax, as this is not income, it is an inheritance.
However, if the person who gave you the money pops their clogs within seven years, some tax may become due, depending on the amount and whether the donor had used up their nil rate band (of £325,000). So long as at least 3 years have passed from the date of the gift, there will be a tapering relief to reduce the amount of gift chargeable.
If you receive money when someone dies, the amount of tax you pay depends on the wording of the Will. If you are named as a pecuniary legatee, ie you are to receive a specific amount of cash, you will get that amount and someone else (the residuary legatee) normally pays the tax. It is possible for the Will to be worded such that you must bear the tax on your legacy yourself, in which case the rate of tax to be deducted will be up to 40%, again depending on the availability of nil rate band in the dead person.
Finally, you could be the residuary legatee yourself. While this is A Good Thing in that you get everything that’s left after any specific legacies, it is a Not So Good Thing in that you normally bear the brunt of the tax liability before you get your hands on the cash. In any case, the Executors will sort all the tax out, so generally what you get is yours to keep. Or spend.