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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4199
Experience:  FCCA FCMA CGMA ACIS
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I have restricted stock options from my US employer which vest

Customer Question

I have restricted stock options from my US employer which vest at 25% per year over four years. Is there a way to pay less Tax? I believe that I would be liable for Income Tax & NI (and potentially capital gains) for the stock that vests in years one and two.
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. I will work on the principle that an US employer's share scheme is one not approved by HMRC. No Income Tax (IT) is chargeable on the grant of the option. On exercise (ie vesting) IT will be payable on the difference between the option price and the market value of shares at the date of exercise. In respect of options granted after 5 April 1999 over shares regarded as convertible into cash (e.g. shares in a listed company) national insurance contributions, both employer and employee, will also be payable in the same way as income tax. In relation to employer National Insurance on options, it is possible to transfer liability for this to the employee with their consent [source: IFS Proshare (edited)]. On sale of sales Capital Gains Tax (CGT) will be payable on the difference between the market value of the shares at the date of exercise and the sale proceeds {same source]. Normally shares are sold on the same day as they vest so there is no gain and hence no CGT. In any event you have an Annual Exempt Amount of 11.1K to offset any gains. NI may be a problem here, but when you self assess at the end of the year then HMRC will advise you of any outstanding NI contributions. However, if your US company remunerates you through PAYE then the whole kit and caboodle should have been taken into account anyway. I do hope that I have helped shed some light on your position.
Customer: replied 2 years ago.
Thank you for the swift response. Am I right that the Tax & NI is only applicable upon vesting in years one and two, because for the tranches taht vest in years three and four CGT is the only applicable tax liability? Also, within years one and two would moving the shares into an ISA or similar bring any tax advantages? Essentially I am seeking to understand if there means to avoid the triple whammy of income tax, NI and CGT upon vesting and selling.
Expert:  bigduckontax replied 2 years ago.
You have it to a 'T,' you only pay IT and NI on vesting, not award. CGT is only applicable if you make a gain on the shares, ie if they vest and you keep them subsequently selling and making a profit. As I told you it is normal procedure to vest and sell on the same day thus avoiding CGT altogether. If you moved the shares straight into a stocks and shares ISA then you would, of course, avoid any further tax on the options, but not the IT on vesting. However, the levels of free income rise substantially in 16/17 (first 5K of dividend income id tax free) so using an ISA envelope may be an unnecessary palaver.
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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.