Selling RSU granted by employed - CGT etc
Discussion
I am in the fortunate position to have been granted RSUs over a number of years by my employed. However, since they are held in USD the gain from the currency market is starting to overtake the performance gain. Add to that, I'm beginning to de-risk in anticipation of retirement. I would please like some advice on whether I've understood the situation correctly, or missing any obvious steps to reduce or remove tax liability.
My intention is to sell the RSUs and then use the cash to invest in an Vanguard S&S ISA, and once each annual ISA limit is reached, non-ISA wrapped investment products, as they are far more diverse than a single company holding.
FYI, in case it makes a difference, I also pay into my pension by salary sacrifice, though any way you look at it I'm a basic rate tax payer.
If I've understood CGT correctly and I wish to remain below the threshold for attracting CGT, I should sell the most recently acquired/vested shares first, since the gain in value is least, then over the course of the next few years, sell increasingly small slices.
I also realise there are some swiftly moving parts here and I could pay a few hundred pounds in CGT now or lose a couple of thousand in currency changes waiting for the next tax year.
My intention is to sell the RSUs and then use the cash to invest in an Vanguard S&S ISA, and once each annual ISA limit is reached, non-ISA wrapped investment products, as they are far more diverse than a single company holding.
FYI, in case it makes a difference, I also pay into my pension by salary sacrifice, though any way you look at it I'm a basic rate tax payer.
If I've understood CGT correctly and I wish to remain below the threshold for attracting CGT, I should sell the most recently acquired/vested shares first, since the gain in value is least, then over the course of the next few years, sell increasingly small slices.
I also realise there are some swiftly moving parts here and I could pay a few hundred pounds in CGT now or lose a couple of thousand in currency changes waiting for the next tax year.
I think you've got it pretty much right.
You can try to be tax efficient about it, and lose out big time if the pound strengthens a lot in the following years. Might be worth doing some sums in a spreadsheet to encapsulate your plan, work out the tax due, and seeing what happens if you assume the pound falls 10%, gains 20% etc.
You can try to be tax efficient about it, and lose out big time if the pound strengthens a lot in the following years. Might be worth doing some sums in a spreadsheet to encapsulate your plan, work out the tax due, and seeing what happens if you assume the pound falls 10%, gains 20% etc.
Smitters,
I assume that selling RSUs and shares are the same as regards UK CGT and HMRC's requirements.
I own shares in a major multinational NY HQ'd company and I decided to sell a tranche of shares in the previous UK tax year, and not incur CGT. Things to note:
1. There's lots of good guidance and examples on HMRC's website.
2. I think you may be wrong to assume a last bought first sold basis. HMRC's website, to me, says that you must work out the average cost of purchase for each share. In my case, they were acquire over several years at different times so I needed to work out the total acquisition costs and divide by total the number of shares I held to get an acquisition cost per share. HMRC's website refers to the need to set up a "S.142 holding" which is what I've just described entails.
3. The CGT this tax year is £12,000, so you need to work out how many RSUs to sell and keep the capital gain below this limit. You will need to make a guess at the exchange rate and take a note of it.
4. Once the sale has taken place you can calculate the gross proceeds, deduct the S.142 holding costs related to the number of RSUs you have sold, and this produces the capital gain. I did this all in US$, and then converted to UK£ at the end. I used the exchange rate at the time of the sale, not at the time of actually receiving the proceeds in US$, and then converting to UK£. Luckily, I had used a conservative assumption regarding the exchange rate when calculating the number of shares to sell before doing so, so as to keep below the CGT allowance. This can be a tricky problem right now with fluctuating exchange rates generally due to a weakening £. Once you have sold the RSUs and moved on to work out the capital gain in US$ and converted to UK£ you can see if you are above, or as anticipated below, the UK CGT allowance of £12,000
5. Something else to note that as long as the total gross proceeds do not exceed 4 times the CGT allowance, ie £48,000 this tax year, there is no reporting requirements as far as HMRC are concerned. This can be very important, depending on the size and gain of the deal you do.
6. Repeat each tax year until your RSUs are all disposed of.
Good luck!
R.
I assume that selling RSUs and shares are the same as regards UK CGT and HMRC's requirements.
I own shares in a major multinational NY HQ'd company and I decided to sell a tranche of shares in the previous UK tax year, and not incur CGT. Things to note:
1. There's lots of good guidance and examples on HMRC's website.
2. I think you may be wrong to assume a last bought first sold basis. HMRC's website, to me, says that you must work out the average cost of purchase for each share. In my case, they were acquire over several years at different times so I needed to work out the total acquisition costs and divide by total the number of shares I held to get an acquisition cost per share. HMRC's website refers to the need to set up a "S.142 holding" which is what I've just described entails.
3. The CGT this tax year is £12,000, so you need to work out how many RSUs to sell and keep the capital gain below this limit. You will need to make a guess at the exchange rate and take a note of it.
4. Once the sale has taken place you can calculate the gross proceeds, deduct the S.142 holding costs related to the number of RSUs you have sold, and this produces the capital gain. I did this all in US$, and then converted to UK£ at the end. I used the exchange rate at the time of the sale, not at the time of actually receiving the proceeds in US$, and then converting to UK£. Luckily, I had used a conservative assumption regarding the exchange rate when calculating the number of shares to sell before doing so, so as to keep below the CGT allowance. This can be a tricky problem right now with fluctuating exchange rates generally due to a weakening £. Once you have sold the RSUs and moved on to work out the capital gain in US$ and converted to UK£ you can see if you are above, or as anticipated below, the UK CGT allowance of £12,000
5. Something else to note that as long as the total gross proceeds do not exceed 4 times the CGT allowance, ie £48,000 this tax year, there is no reporting requirements as far as HMRC are concerned. This can be very important, depending on the size and gain of the deal you do.
6. Repeat each tax year until your RSUs are all disposed of.
Good luck!
R.
Cheers for the confirmation.
Each block of shares has a specific gain attached to it, so it's easy to sell them as a job lot and creep up to the CGT limit. The account I use tells me that for each block, which is super-helpful.
ETA - I'll look into the averaged gain point. That might drag me back as some shares are pretty old (2012) so have significant % gain.
I have done exactly as suggested - set share price vs exchange rate. Certainly the share price behaviour would have to alter significantly (for better or worse) to be more volatile and impactful that exchange rate over then next six months. Given I'd be doing my whole CGT allowance in one hit, there's little to suggest I should sell now. I think I will set a date and exchange rate limit, so whichever I hit first, I'll sell at.
Each block of shares has a specific gain attached to it, so it's easy to sell them as a job lot and creep up to the CGT limit. The account I use tells me that for each block, which is super-helpful.
ETA - I'll look into the averaged gain point. That might drag me back as some shares are pretty old (2012) so have significant % gain.
I have done exactly as suggested - set share price vs exchange rate. Certainly the share price behaviour would have to alter significantly (for better or worse) to be more volatile and impactful that exchange rate over then next six months. Given I'd be doing my whole CGT allowance in one hit, there's little to suggest I should sell now. I think I will set a date and exchange rate limit, so whichever I hit first, I'll sell at.
Edited by Smitters on Tuesday 30th July 15:12
Gassing Station | Finance | Top of Page | What's New | My Stuff