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TaxRobin
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Experience:  International tax
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I'm a UK-based employee, my employer is a US company, and annually

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I'm a UK-based employee, my employer is a US company, and annually they issue stock options at a slight discount to the current price. They vest partially after one year and then more vest each month until they are fully vested at four years. The company payroll taxes me at 42% (I think high rate tax plus high band NI). They used charge the employer NI as well. My question is, is it correct to charge tax as if it were income? Why is it not capital gains tax on the increase that you have gained? For example https://www.gov.uk/tax-employee-share-schemes/company-share-option-plan suggests it should be.
Submitted: 2 years ago.
Category: Tax
Expert:  TaxRobin replied 2 years ago.
Hello and thank you for allowing me to assist you.
If the US company has not created an approved plain the tax is on the option as income.
United Kingdom tax relief on stock option gains can be obtained by creating an approved H M Revenue & Customs arrangement ("Sub-Plan") that will attach UK tax-favoured status to options granted by a US company to either its employees or employees of its UK subsidiary.
Tax relief is available in respect of options with an aggregate fair market value of £30,000 determined at the date of grant of the option. The gains attached to options granted outside the approved arrangements are subject to UK income tax and (in appropriate cases) National Insurance Contributions ("NICs") where appropriate.
Employers NICs can be transferred to the optionee by a joint election or an agreement with the optionee. The optionee will normally receive tax relief for any employers NICs paid.
You may find the following helpful in understanding the US company's position:
http://www.us.kpmg.com/microsite/tax/ies/tea/fall2001/stories/article04.htm
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