With SAYE, if an option is exercised and the gain is realized, what tax applies after the annual exemption?

• A. Exit tax at 41%.
• B. Income tax at standard rate only.
• C. Income tax at 40%.
• D. Capital Gains Tax.

Answer: (D)

In SAYE schemes, the gain from exercising the option and later disposing of the shares is treated as a capital gain, not as income. If the plan qualifies, there isn’t an income tax charge at the moment of exercise on the discount; the tax is due when you dispose of the shares. The amount taxable as CGT is the gain above the annual CGT exemption. So, after applying that exemption, any remaining gain is taxed at CGT rates rather than income tax rates or any special exit tax. For example, if you realize a £15,000 gain and the CGT annual exemption is £12,300, £2,700 would be subject to CGT. If the gain is below the exemption, no CGT is due. The other options describe income tax or an exit tax, which do not apply to SAYE gains.