Selling share options in a US company
Discussion
What is the most tax-efficient way to sell share options in a US-based company? I am UK-based so I would expect I have to sell them on the US market and then transfer the funds to the UK incurring currency conversion costs and dealer charges etc.
I am also going to be taxed on the gains either in the US or UK, how does that work?
Thanks in advance for any assistance
I am also going to be taxed on the gains either in the US or UK, how does that work?
Thanks in advance for any assistance
You will not be selling a share option. What you are contemplating is taking up the option to obtain shares, and then possibly/most likely selling them immediately afterwards.
At the point of exercising the option you are liable to UK income tax, note not CGT, on the full value of the shares calculated on the share price on the day you exercise your option. Usually, in order to pay the income tax you sell the shares immediately, and then account to HMRC for the income tax due, usually via SA for the tax year in question. The excess sale proceeds are yours.
If you exercise the options and do not sell (which is unusual), you remain liable for the income tax, so you'll then need to find the means to pay that tax. On subsequent sale of the shares at any future date there's a liability for UK CGT so you may want to consider a partial sale each year so that the gain falls within the UK CGT allowance. The CGT is calculated after the cost to you of acquiring the shares.
The dividends paid on the shares that you do not sell will be subject to UK income tax. The dividends will probably be subject to USA withholding tax (assuming everything is arranged efficiently) which you can declare when completing your SA so that tax will be offset against the UK income tax.
As regards currency issues, on remittance to the UK you will bear the exchange rate applicable at that time.
Any fees etc at any time can be included in acquisition costs when calculating UK CGT.
All the above assumes no special arrangements are already in place and is based on my own experiences, so others may know better!
And I'd be surprised if your employer does not offer general advice on the matter of share options, vesting, tax issues etc.
R.
At the point of exercising the option you are liable to UK income tax, note not CGT, on the full value of the shares calculated on the share price on the day you exercise your option. Usually, in order to pay the income tax you sell the shares immediately, and then account to HMRC for the income tax due, usually via SA for the tax year in question. The excess sale proceeds are yours.
If you exercise the options and do not sell (which is unusual), you remain liable for the income tax, so you'll then need to find the means to pay that tax. On subsequent sale of the shares at any future date there's a liability for UK CGT so you may want to consider a partial sale each year so that the gain falls within the UK CGT allowance. The CGT is calculated after the cost to you of acquiring the shares.
The dividends paid on the shares that you do not sell will be subject to UK income tax. The dividends will probably be subject to USA withholding tax (assuming everything is arranged efficiently) which you can declare when completing your SA so that tax will be offset against the UK income tax.
As regards currency issues, on remittance to the UK you will bear the exchange rate applicable at that time.
Any fees etc at any time can be included in acquisition costs when calculating UK CGT.
All the above assumes no special arrangements are already in place and is based on my own experiences, so others may know better!
And I'd be surprised if your employer does not offer general advice on the matter of share options, vesting, tax issues etc.
R.
The Leaper said:
You will not be selling a share option. What you are contemplating is taking up the option to obtain shares, and then possibly/most likely selling them immediately afterwards.
At the point of exercising the option you are liable to UK income tax, note not CGT, on the full value of the shares calculated on the share price on the day you exercise your option. Usually, in order to pay the income tax you sell the shares immediately, and then account to HMRC for the income tax due, usually via SA for the tax year in question. The excess sale proceeds are yours.
If you exercise the options and do not sell (which is unusual), you remain liable for the income tax, so you'll then need to find the means to pay that tax. On subsequent sale of the shares at any future date there's a liability for UK CGT so you may want to consider a partial sale each year so that the gain falls within the UK CGT allowance. The CGT is calculated after the cost to you of acquiring the shares.
The dividends paid on the shares that you do not sell will be subject to UK income tax. The dividends will probably be subject to USA withholding tax (assuming everything is arranged efficiently) which you can declare when completing your SA so that tax will be offset against the UK income tax.
As regards currency issues, on remittance to the UK you will bear the exchange rate applicable at that time.
Any fees etc at any time can be included in acquisition costs when calculating UK CGT.
All the above assumes no special arrangements are already in place and is based on my own experiences, so others may know better!
And I'd be surprised if your employer does not offer general advice on the matter of share options, vesting, tax issues etc.
R.
A clarification on what I said earlier. In my para 2 I said "on the full valued of the shares". What I mean by this is the difference between the full value on the day you take up your option and acquire the shares, and the cost to you to acquire them. What usually happens is that you decide to take up the options and immediately do a comprehensive share trade whereby the shares are sold for you and you get the net proceeds after the cost of you purchasing the shares is deducted. This means that you do not need to come up with the cash to buy the shares: it's all part of the trade. You get the net proceeds, and it is this amount that you have to report to UK HMRC for income tax purposes.At the point of exercising the option you are liable to UK income tax, note not CGT, on the full value of the shares calculated on the share price on the day you exercise your option. Usually, in order to pay the income tax you sell the shares immediately, and then account to HMRC for the income tax due, usually via SA for the tax year in question. The excess sale proceeds are yours.
If you exercise the options and do not sell (which is unusual), you remain liable for the income tax, so you'll then need to find the means to pay that tax. On subsequent sale of the shares at any future date there's a liability for UK CGT so you may want to consider a partial sale each year so that the gain falls within the UK CGT allowance. The CGT is calculated after the cost to you of acquiring the shares.
The dividends paid on the shares that you do not sell will be subject to UK income tax. The dividends will probably be subject to USA withholding tax (assuming everything is arranged efficiently) which you can declare when completing your SA so that tax will be offset against the UK income tax.
As regards currency issues, on remittance to the UK you will bear the exchange rate applicable at that time.
Any fees etc at any time can be included in acquisition costs when calculating UK CGT.
All the above assumes no special arrangements are already in place and is based on my own experiences, so others may know better!
And I'd be surprised if your employer does not offer general advice on the matter of share options, vesting, tax issues etc.
R.
R.
Your employer should be able to give you loads of relevant information.
I all I would add to the above is make sure you have completed a W-8BEN so you don't get US tax with holding, and that depending on the scheme you are likely to be paying both employers and employees NIC.
Have a look at a service like Wise to get your money back here
I all I would add to the above is make sure you have completed a W-8BEN so you don't get US tax with holding, and that depending on the scheme you are likely to be paying both employers and employees NIC.
Have a look at a service like Wise to get your money back here
Completion of USA IRS form W-8BEN is certainly advisable. You complete it if you are what is termed in the USA a "Non Resident Alien". Assuming that you are a NRA and therefore can and do complete and file the form with the USA IRS, it means that any income you get in the USA is not subject to their normal taxes. Instead, that income is subject to a lower rate of withholding tax and will be deducted from any payments made to you by the payor eg the share administrator.
Filing the completed W-8BEN is usually done via the share administrator. If so, this means that they will be aware of your different tax position.
When completing your UK SA, if you have filed a W-8BEN and there's been withholding tax applied to any payments in USA before remittance to the UK (as is likely to be the case), you will need to complete the "Foreign" section of the UK SA form the tax year on question. You insert the gross payment before remittance and withholding tax is applied, and also insert the amount of withholding tax, so that you get the credit for the withholding tax already paid in the USA against the tax due in the UK on the gross amount.
R.
Filing the completed W-8BEN is usually done via the share administrator. If so, this means that they will be aware of your different tax position.
When completing your UK SA, if you have filed a W-8BEN and there's been withholding tax applied to any payments in USA before remittance to the UK (as is likely to be the case), you will need to complete the "Foreign" section of the UK SA form the tax year on question. You insert the gross payment before remittance and withholding tax is applied, and also insert the amount of withholding tax, so that you get the credit for the withholding tax already paid in the USA against the tax due in the UK on the gross amount.
R.
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