UK share plans – changes to the taxation of internationally mobile employees from 6 April 2015
This article was first published by Tax Journal on 14 November 2014.
The taxation of share options and awards held by employees moving into and out of the UK has historically been a very complex area. The basic position has been that liability to UK tax was determined by reference to an employee’s residence status as at the date of grant of a share option. Therefore, if an employee moved to the UK after an option was granted, he/she would not be subject to UK tax on the exercise of the option. However, this position was subject to numerous exceptions and provisos. For example, certain types of rights to acquire shares (such as restricted stock units) may be taxed differently depending on their legal structure. Although HMRC has produced guidance on this subject over the years, there still remains a lot of uncertainty as to how the rules should be applied in practice.
New rules from 6 April 2015
Therefore, as part of the UK government’s tax simplification project, a new tax regime will come into force on 6 April 2015. Under the new rules, the taxation of share options and awards held by internationally mobile employees will be more closely aligned with other forms of employment income. Residence status at the date of grant will no longer be relevant. Instead, an employee’s tax liability will be determined broadly in line with his/her residence status over the vesting period. The current remittance basis rules for non-domiciled employees who are resident in the UK will continue to apply.
All options exercised post 6 April 2015 affected
The new rules will apply to all share options exercised/share awards vesting after 6 April 2015, whenever they were granted. Therefore, there may be employees who would not have expected to be subject to UK tax under the old rules (because they were non UK resident at the date of grant) who would be subject to UK tax if they exercised their options after 6 April 2015.
This article (which was first published in the Tax Journal on 14 November 2014) looks at the changes in further detail, and considers some of the practical implications for both employees and employers.
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