ERSM80040 - Disposals for more than Market Value: Example: stop-loss

Maggie Joshi buys 100 shares in her employer for 拢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 拢5 for each of them if she sells them at any time during a two-year period commencing on 1 January 2008.

Maggie wants to sell the shares on 30 September 2008 when the the market price is only 拢4 per share. Her employer buys them from her for 拢5 each. The sale expenses are 拢30.

Applying the formula CD - MV - DA:

CD = 拢500.

MV = 拢400 market value of shares

DA = 拢30 expenses of sale

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