Restricted Stock Units

[okgo]

Hi there, I had a little search and the last advice is nearly a decade old, so wanted to just test the water here as I am sure things have changed since.

I've been trying to make sense of my options (no pun intended) around this, I thought I had worked it out, but I'm now a little unsure having heard a few conflicting bits of advice, and having just read this it has further mudied the water - https://frazerjames.co.uk/rsus-a-tech-employees-gu...

I'll make the numbers up, but this is the situation :

Granted 10000 options of my company upon joining with a 4 year vesting period. In a month the first 25% vest at year 1, the following 75% vest qtrly over next 3 years. Grant price/strike price is $20. Currently trading (IPO'd fairly recently) at $50 on NYSE. It is a US company and I am based in London.

I believe the stock will continue to rise, so my intention is to hold the stock, and also minimise my exposure to tax if I possibly can. From the above link it seems that I'll pay income tax and NIC when they vest (which would be 45% + 13.8%) , however it isn't totally clear to me whether I'm paying that on the number of shares that vest based on the $20 dollar strike price, so in this instance 2500 x $20 = $50,000 , the spread between the strike price and what they're currently trading at 2500 x $30 = $75,000, or something else? Also in many of the examples I've found it talks about selling straight away, I don't want to do this - also - I have the money to buy the shares, I don't need to use shares to buy them, if I do this do I pay the tax on the spread that exists on that day and if they're far higher in years to come I only have to worry about CGT?

It seems a bit of a minefield, and online advice seems largely geared towards me wanting to convert into cash the minute they vest, which as said I have no interest in...any help would be great.

ETA - actually they seem not to be RSU but NQ - non qualified..

Edited by okgo on Monday 21st June 16:50

[NickCQ]

I always used to sell my RSU shares (NYSE company) when they vested, but what seemed to happen was this:

• RSU grant of fixed # of shares
• no tax impact at date of grant
• quarterly dividends on payslip treated same as regular income
• on vesting date, # of shares vesting go through payslip at market value
• income tax and NIC paid on market value at vesting date
• shares delivered to brokerage account sponsored by company
• shares immediately sold with no further tax impact

I assume (as I say, I always sold to diversify & de-risk) that if I had held the shares for a bit, any CGT would be calculated between sale price and market value at vesting, as that was my "tax basis".

I had to fill in a W8-BEN to declare that I was not and should not be treated as a US taxpayer.

[zbc]

NickCQ said:

• shares immediately sold with no further tax impact

I assume (as I say, I always sold to diversify & de-risk) that if I had held the shares for a bit, any CGT would be calculated between sale price and market value at vesting, as that was my "tax basis".

I assumed this to be the case but recently my tax accountant pointed out that there can be a small delay between the vesting and the shares actually being available to be sold. So at the vest date they might be $1000 and when they get sold you might get $1002. She also pointed out for the 20 shares I got no one would really care but of course your situation may differ

[NickCQ]

zbc said:

I assumed this to be the case but recently my tax accountant pointed out that there can be a small delay between the vesting and the shares actually being available to be sold. So at the vest date they might be $1000 and when they get sold you might get $1002. She also pointed out for the 20 shares I got no one would really care but of course your situation may differ

I took the view that this was below my CGT allowance, I suppose if the total disposal was over the notification threshold or you were crystallising other gains in the year you might take it more seriously.

[zbc]

NickCQ said:

I took the view that this was below my CGT allowance, I suppose if the total disposal was over the notification threshold or you were crystallising other gains in the year you might take it more seriously.

Sadly i live in an unenlightened country without a CGT allowance

[Carbon Sasquatch]

I'm not sure if they are all the same, but at my prior firm (US Bank) an RSU was an un-funded promise to deliver stock in the future. So there was a notional 'value' of the grant, that translated into a number of units, but you did not receive real physical stock until the vesting date - at which there was a market price & tax due - which for me just meant I lost about 50% of the shares.

Your employer may or may not chose to pay the equivalent of a dividend between grant & vesting.

We also had further restrictions before we could sell - after delivery they were real shares in your account, but with a future sale date.

What this meant was that if you left to go to a competitor, the RSU's disappeared, but you could keep the stock, even if it's sale was still restricted until a date in the future.

You need to understand the terms of the RSU and under what circumstances they may be withdrawn.....

[Arranguez]

My place, US software company, also takes tax out when they vest losing just over half.

[deckster]

As above, your employer will almost certainly take all the tax due out before you receive the shares. Assuming that you have a W8-BEN on file, it will just all happen and you'll receive some shares that are completely net of tax (usually, quite a lot fewer than you were expecting ).

You say RSUs but then talk about options and a grant price - which is it? Options and RSUs are quite different although ultimately as above you don't have a choice of how to pay the tax.

With options, they will first take the cost of acquisition (i.e. number of options exercised * grant price) away from your total and then you get taxed at 55% or so on the remainder. What's left is yours to keep.

One thing that caught me out is that this all counts as PAYE income in the UK - so to keep things neat for self-assessment and P60 purposes you will get a whopping tax bill and a corresponding tax credit in the same month. Whilst doesn't affect anything in that month, it does have the effect of increasing your annual income which can do nasty things if you're exercising a large number of options and it takes you over a tax band or two. Cost me a few K extra on my self-assessment that did and certainly worth bearing in mind.

[okgo]

Ok.

And then what, I just keep them until such time I fancy? Then pay CGT if gains exceed my allowance?

So if it goes to 1000 dollars from the grant price. Doesn’t matter in an income/NIC sense as that will have been done upon vest as you note?

[CharlesElliott]

Yes, income tax / NI when they vest (as that's when they become 'yours'). CGT when you sell them, if applicable.

With the added complication that you should keep track of USD / GBP rates at time of vesting and at time of sale as all CGT calcs need to be in GBP....or you can use the HMRC rates.

Charles

[deckster]

okgo said:

Ok.

And then what, I just keep them until such time I fancy? Then pay CGT if gains exceed my allowance?

So if it goes to 1000 dollars from the grant price. Doesn’t matter in an income/NIC sense as that will have been done upon vest as you note?

Yes. After vesting & exercising, they become standard investments and are subject to CGT rather than income tax.

If you genuinely think they are going to increase substantially then you should consider selling & rebuying into an ISA. It's a bit painful as you will pay currency conversion both ways, transaction fees, and you are exposed between the sell and the buy. I lose about 5-6% over the whole transaction. But highly likely to be well worth the immediate cost if you have more than a handful of shares and are planning to hold onto them for a few years.

[okgo]

Does that stack up regardless of the gap between grant and current market value?

[NickCQ]

okgo said:

Does that stack up regardless of the gap between grant and current market value?

If they are RSUs, the market value at grant is irrelevant, as you have already paid income tax to step up the basis to market value at date of vesting.

[gregs656]

You may get an email which explains your tax withholding options.

How ever much you think you have, half it.

[okgo]

gregs656 said:

You may get an email which explains your tax withholding options.

How ever much you think you have, half it.

They did some webinar thing but its all Yank focussed to be honest, guess perhaps see what happens on vesting day isn't a bad shout.

[rxe]

Depends on how the company does it, but certainly for mine, the scheme is run by a broker (paid for by the company) and there is precise detail on the nominal “acquisition price” at the time of vesting.

I think with mine the income is declared for tax as soon as I am given the RSUs. So I get a nice letter saying “you’ve got a bonus of xx RSUs vesting over 3 years”, and when I look at my account xx/2 (roughly) appears.

I burn my CGT allowance every year selling some of them.

[NickCQ]

rxe said:

I think with mine the income is declared for tax as soon as I am given the RSUs. So I get a nice letter saying “you’ve got a bonus of xx RSUs vesting over 3 years”, and when I look at my account xx/2 (roughly) appears.

It sounds like you are describing immediate vesting, if the shares are delivered upon grant. It might be that they are locked up for a period of time, i.e. you can't sell. Selling restrictions aren't important for tax purposes.

[gregs656]

okgo said:

They did some webinar thing but its all Yank focussed to be honest, guess perhaps see what happens on vesting day isn't a bad shout.

It will be, but that is what they are going to apply to you. Your company will set the tax witholding rate.

[okgo]

Interestingly I've done a bit more reading here as the first lot are due to vest next week.

They are actually 'stock options' not RSU and apparently they have a 10 year expiry on them from vest date. And I pay income tax etc on the spread between exercise price and the market price on the day that I buy them, so it makes sense if they are trading fairly reasonably right now, to buy them ASAP and take the hit now, vs potentially buying them when the price is higher?

Then I believe once I own them the only other thing that comes into play is CGT, which is obviously manageable to a degree as there's a 12500 limit that I could use per annum and not attract taxation. But if the thought was a long-term hold then buying them ASAP and paying the tax on the spread which I believe to be low - currently trading at $35 and my exercise price is $17 - vs doing that later in time where they might be $50 or $100 on the market makes sense, I think...

[LooneyTunes]

Depending on circumstances, consider buying and immediately selling enough to recoup or offset some of the costs/tax?