Demeter has recently taken up a new employment and is seeking advice on the tax treatment of certain components of his remuneration package.

Demeter:
– Is UK resident and domiciled.

– Commenced employment with Poseidon Ltd on 1 December 2018.

– Will have no source of income, other than from Poseidon Ltd, in all relevant future tax years.

– Will be a higher rate taxpayer in all relevant future tax years.

Remuneration package from Poseidon Ltd:
– Demeter will receive an annual salary of £130,000.

– On 1 December 2018, Poseidon Ltd made a one-off lump sum payment of £20,000 to Demeter as an inducement to take up employment with the company.

– On 1 December 2018, Demeter was granted share options in Poseidon Ltd’s unapproved share option scheme.

Poseidon Ltd’s share option scheme:
– On 1 December 2018, Poseidon Ltd granted Demeter options over 3,000 shares in its unapproved share option scheme at a 5% discount on the market value of the shares on that date.

– The market value of Poseidon Ltd shares on 1 December 2018 was £4·20 per share.

– Demeter will exercise the options on 6 April 2024, and immediately sell the shares.

– Poseidon Ltd believes that the market value of its shares on 6 April 2024 will be £6·00 per share.

Required:
(c) Explain, with supporting calculations, the tax consequences for Demeter of participating in:

(ii) Poseidon Ltd’s unapproved share option scheme, in respect of the grant of the options on 1 December 2018 and the exercise of the options and subsequent sale of the shares on 6 April 2024. (4 marks)

Note: Ignore national insurance contributions (NIC) in part (ii).