Tax question - Company Stock RSU's

[anonymous-user]

Question for the tax guru's !

I had been awarded a number of company stock RSU's (Restricted Stock Units) and these have now vested.
What is my tax liability for these types of awards?

Is it treated as Capital Gains or should it be liable to full income tax?
I had assumed capital gains but looks like I may have been wrong

[Eric Mc]

Not an expert but the key to a lot of these types of things is the amount of time you held them before they were turned into cash. Your employers should have explained to you EXACTLY the tax implications of this and advised you how to optimise the tax situation.

[anonymous-user]

Eric Mc said:

Not an expert but the key to a lot of these types of things is the amount of time you held them before they were turned into cash. Your employers should have explained to you EXACTLY the tax implications of this and advised you how to optimise the tax situation.

I've read the company stock literature but I'm not clear (its all Americanized!). I'm checking with the company finance team but again no clear answer yet.

Basically whats happened is that I got a letter from the broker (Fidelity) telling me that X number of my stock RSU's had vested.
They also said that 52% of the stock had been "held back" to settle any future tax liabilities, so basically what I see in my Fidelity account is 48% of X number of shares which are available for me to sell. I'm not even given the option to sell the full amount of vested shares (X) myself and then settle my own tax liabilities. (I'm assuming the 52% is the 40% rate of tax in the UK + national insurance.)

For some reason I had it in my head that stock RSU's would be seen as capital gains though which obviously would not attract the 52% tax.

[Eric Mc]

This type of "bonus" is very common with American companies. They are often completely ignorant of how they are treated in the UK for Income Tax and PAYE purposes - and often don't really care as the incentives are geared towards the US based employees and the US tax system.

Shares issued to staff in lieu of a salary bonus CAN be taxed under the more beneficial Capital Gains Tax rules provided various hoops are jumped. As I said, the key factor is usually holding onto the shares for a number of years, usually 5, before cashing them in. If cashed in earlier, they become taxable under Income Tax rules and may even be subject to National Insurance (as a standard salary bonus).

[anonymous-user]

Thanks for the insight Eric - I'll keep digging !

[sumo69]

Its not just US companies that have this type of arrangement - I have a client who has shares in an Aviva employee scheme which works the same way.

The employer will issue a P60 for the gross bonus showing the tax and NI that has been paid (by selling off the shares) - what is interesting is that this can cause, dependent on the individuals earnings, both an under or over payment of income tax and quite commonly an overpayment of employees NI which is a PITA to reclaim.

David

[Eric Mc]

The extra complication the OP has is this 52% witholding tax retained by the scheme - which is probably a US based taxed precaution.

[shocks]

Eric Mc said:

This type of "bonus" is very common with American companies. They are often completely ignorant of how they are treated in the UK for Income Tax and PAYE purposes - and often don't really care as the incentives are geared towards the US based employees and the US tax system.

Shares issued to staff in lieu of a salary bonus CAN be taxed under the more beneficial Capital Gains Tax rules provided various hoops are jumped. As I said, the key factor is usually holding onto the shares for a number of years, usually 5, before cashing them in. If cashed in earlier, they become taxable under Income Tax rules and may even be subject to National Insurance (as a standard salary bonus).

Eric

Any more information on this, been having this exact ongoing battle for years on Options & RSUs, at present they are treated as income and therefore taxed at higher rate tax (getting on now for 50% + NIC). Our scheme, similar to OP with US company, has been deemed as non-approved by HMRC, used be you could have a value up to £32k in the approved scheme but this has gone silent last few years.

We have two scenarios :

Scenario 1 : Options - granted up until 2007 (now replaced with RSUs) - these are pretty much fully vested with expiration coming up over next few years, so have been held for at least 5 years, currently these are being treated as income and therefore subject to income + NIC (we used to have to suffer employer NIC pass thru as a condition but this has since been reaccepted as employer liability)... Interested in how to move these to CGT - note have not exercised these options so they sit vested.

Going by the above what hoops need jumping through to attract the CGT route -v- income/tax as the options are all over 5 years old

Scenario 2 : RSUs - granted from 2007 onward - these vest annually and sit in account - similar to OP scenario these have 52% deduction, which is income tax at highest rate + NIC. Holding these is not an issue - so if we were to hold for the 5 year period it would be good to know how to reclaim the 53% deduction and go CGT route in future (assuming rules don't change).

Any advice gratefully received

Cheers

[Eric Mc]

As I said at the start, I am no expert on these rather complex schemes. I'm afraid I've already given about as much as I know.

[The jiffle king]

I don't have the answer to your question, but with my company which uses the RSU's and options that many US companies do, we have a company we can call (Merrils in our case) who can help with the implications in your case. As an expat, I use the PWC friendly faces to help me as it's all quite complex and it's easy to get wrong

- Separate note to EricMC, you helped me with another issue some time ago around Capital Gains tax on my sole property which is rented out. I should get a definitive answer in the next couple of months and will post on the orginal thread which I bookmarked