I have old US stock options granted 2 years ago by my then US employer over shares in the US top company of the group granted when my duties were solely in the US. I am now employed by the wholly owned UK subsidiary: do I pay UK taxes on vesting?
Your options are likely to be equivalent to UK unapproved securities options.
In broad terms you need to establish what the "relevant period" is and use that to apportion how much (if any) of the gain arising on your options relates to your UK duties. Normally the relevant period will be the period between the grant of the option and vesting (4 years in your case). Let's assume your potential income is the gain (ie market value at vesting less the price paid for your option shares) will be £1m.
The £1m of securities income has to be apportioned as between the following three categories (taxable specific income (TSI), chargeable foreign securities income (CFSI) and unchargeable foreign securities income (UFSI)) by reference to the number of days in the relevant period.
Broadly the proportion of the gain that relates to when you were working and living and solely tax resident in the US, and you had no UK duties is outside the scope of UK tax as it is USFI. In respect of your options that will vest in 2 year's time that should mean approximately 50% of your option gain is not taxable in the UK.
CFSI is income which is taxable if remitted to the UK. Because you will be taxed on the remittance basis, you will at the time of exercise have been UK tax resident for less than 3 years, and some or all of your duties are performed outside the UK a proportion of the gain on your options should be CFSI. This proportion is assessed on a "just and reasonable" basis and whilst time would initially be a good indicator of this there maybe other more appropriate methods. Your CFSI may be 1/3 of 50% of £1m.
Adopting a time apportionment just and reasonable basis would suggest that as you are performing duties in the UK that the balance ie 2/3 of 50% of £1m would be taxable specific income.
Assuming you intend not to remit your CFSI option gain into the UK, you may wish to consider whether you could accelerate vesting of some or all of your US options and also ensure that the 1/3 (US) to 2/3 (UK) split of your time is a "just and reasonable" basis for apportioning your option gain.
For more information or advice, please contact Elizabeth Small, Partner in our Corporate team.
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Please do contact any member of our Sen Ex Advisory Group to suggest a question or to find out more about how we can help.
Senior Executives: thinking of relocating to the UK?
We answer common questions raised at key stages of the relocation process.
