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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15707
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Hi - I have been living in Spain for 3 yrs and wish to sell

Customer Question

Hi - I have been living in Spain for 3 yrs and wish to sell some stock options from my previous employer - I am a non-resident UK citizen.
Am i entitled to the CGT allowance of £11,000 if the share proceeds are paid into my UK account?
If the only income stream in the Uk is rental income from our house in London, can you confirm how much I should calculate as the tax deduction on this lump sum payment of $60,000 into my UK bank account.....
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

Did you exercise the stock options before you left the UK to live in Spain? If so, did you pay income tax at the time of the exercise of the options? What were the terms of the option scheme?
Customer: replied 2 years ago.

here's the complication factor! I exercised the options this week having lived in Spain for 3 yrs (self employed consultant) and 5 yrs in Geneva as an expat with Procter & Gamble. These options were granted by P&G during my time in Geneva. I am on the HMRC radar simply because we have rental income from our house in the UK, otherwise I am fully tax resident in Spain and my company is tax registered in Spain too....

Expert:  TonyTax replied 2 years ago.
Thanks.

Can you tell me when the option was granted, whether you had to buy the shares when you exercised or they were vested free to you and whether you were working in the UK at any time after the original granting of the option.
Expert:  TonyTax replied 2 years ago.
Where were you paying tax whilst working in Geneva, the UK or Switzerland?
Customer: replied 2 years ago.

yes i have been paying tax fully compliant in Geneva (via the P&G / Geneva authorities) to the UK as part of the expat deal: salaries were tax neutralised and the company dealt with the complex gross to net calculations/ payments on my behalf. In Spain I am full compliant and registered as an employee of my own company

Expert:  TonyTax replied 2 years ago.

Thanks.

Did you exercise the options through P&G? Have they deducted UK income tax? Do you know if the option scheme was an HMRC approved one or not as that makes a difference to the tax treatment? When the option was granted, was it one where you were required to pay X pence per share on exercise when the market price was higher or was it a a scheme whereby there was no exercise price and you effectively got the shares free?

Customer: replied 2 years ago.

The options were exercised via P&G- and they (by mistake) have deducted at source a Swiss tax level instead of the UK. The option scheme will be HMRC approved and the scheme is such that i got the shares for a price and when i sell i am entitled to the difference in the grant price and the current mkt price.....

Expert:  TonyTax replied 2 years ago.
Thanks.

Leave this with me while I draft my answer.
Expert:  TonyTax replied 2 years ago.

Hi again.

You should refer to the notes here, here, here and here as part of this answer.

Gains made on approved share option scheme exercises are not normally subject to income tax. See HS287. The CGT cost is normally what is paid for the shares on exercise of the option.

The base CGT cost for shares acquired through an unapproved option scheme is usually the sum of the price paid for the shares and the amount on which income tax is paid (usually the difference between the market value on the exercise date and the price paid for the shares).

If you sell shares as a non-resident, you won't pay capital gains tax in the UK unless you return to the UK within five full tax years of leaving (assuming you left prior to 6 April 2013) and you owned those shares before you left the UK. Read the temporary non-residents rules here.

From what you have told me, your tax arrangements whilst employed at P&G were complex and beyond what I can advise you on without access to the agreements between P&G and the Swiss tax authorities. That agreement may have an effect on how your option profit should be taxed if it is actually liable to income tax at all (ie an unapproved scheme). Since you appear not to have been employed at the time of the option exercise, you probably won't qualify for any of the gain to be free of UK income tax, if it is so chargeable, for the period that you were working in Switzerland.

As a UK national, you are entitled to a personal allowance of £10,000 for 2014/15. The first £31,865 of income over and above the personal allowance is taxed at 20% and the excess up to £150,000 is taxed at 40% (the PA gets taken away gradually on incomes over £100,000) so more is charged at 40%.

If the $60,000 gain (say £38,700) is chargeable to income tax in the UK as opposed to Swiss tax and you have no other UK income, then you will have the £10,000 personal allowance to offset against the gain leaving £28,500 taxable at 20% so your liability will be £5,740. You will still have £3,365 of the 20% tax band to use against rental income with any excess being taxed at 40%.

I hope this helps but let me know if you have nay further questions.

Customer: replied 2 years ago.

thanks for a very comprehensive answer - the question you raise is a good one: where am i liable for the tax declaration/ payment? definitely not Switzerland but as a non-resident UK citizen now employed and living in Spain.....should I actually be considering having to pay cgt under spanish income tax law or the fact that it was paid into a UK account from the US means I have to declare it to HMRC....(?)

Expert:  TonyTax replied 2 years ago.

If you were a non-UK national living in the UK, you would have the choice of being taxed on UK source income and remittances of foreign income to the UK. I'm not an expert on the Spanish tax system so you would be well advised to take some local advice to see if a similar system exists there for non-Spanish nationals..

Banking the money in the UK is probably the safest option until you know what your Spanish tax position is. It won't make any difference to your UK tax situation either way.

If the share option scheme was a US scheme, it is probably unapproved by HMRC in the UK. That would make your gain chargeable to income tax in the UK, certainly if you were resident in the UK. What you need to find out is how your working in Switzerland and the tax arrangement you had whilst you were there affects where you pay tax. P&G's UK inhouse tax people or their external advisers should be able to help you in that regard.

Customer: replied 2 years ago.

i would like to get back to you when i receive a "payslip" in the post from P&G UK Payroll in the next few days......

Expert:  TonyTax replied 2 years ago.
OK. The question will stay open. I would suggest you ask them what their understanding of the tax position is and to confirm that the option scheme was an unapproved one.

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