Claiming tax back for shares in the USA
marcusw1981
Posts: 1 Newbie
in Cutting tax
I work for an American company in the UK and as part of their perks you get shares every two years.
Once they are vested a tax of 50% of their total worth is deducted in America and then a portion is also taken from the UK. Is there a way of claiming back the 50% tax from America as I am not in that country?
Once they are vested a tax of 50% of their total worth is deducted in America and then a portion is also taken from the UK. Is there a way of claiming back the 50% tax from America as I am not in that country?
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I am assuming that you are not the only UK employee in this situation and that this scheme is not new.
Therefore it is likely that there is some information in your company handbook concerning taxation of the gifted shares.
Otherwise, check with HMRC.
https://www.gov.uk/government/organisations/hm-revenue-customs/contact/income-tax-enquiries-for-individuals-pensioners-and-employees
https://www.gov.uk/government/publications/employee-shares-and-securities-further-guidance-hs305-self-assessment-helpsheet/hs305-employee-shares-and-securities-further-guidance-2015
https://www.moorestephens.co.uk/MediaLibsAndFiles/media/MooreStephensUK/Documents/Tax-Share-based-remuneration-for-employees-in-UK-subsidiaries.pdf?ext=.pdf0 -
Assuming you are a UK resident and not a US citizen(*), it seems unlikely to me that in an employer-sponsored account this 50% is US tax, even though taken by a US broker. Perhaps check that this broker knows your circumstances accurately. This might involve filing a W-8BEN form with them.marcusw1981 wrote: »Once they are vested a tax of 50% of their total worth is deducted in America and then a portion is also taken from the UK. Is there a way of claiming back the 50% tax from America as I am not in that country?
The usual way things work here is that your employer sets some highly conservative withholding rate to cover them for UK income tax and NI, perhaps 35% tax plus 15% NI, and tells the US broker to withhold that and send it to them. They will then put the vested shares' value through normal PAYE payroll, and you perhaps get a small boost in pay a month or two after the shares vested, this boost being a refund of the over-withholding (that is, the difference between the 50% withheld and your actual UK tax and NI liability). At the end of all of this rather roundabout process, you would have no need to deal with the US IRS, and your UK NI and tax come out either right or close enough, with any trailing inaccuracies handled as normal through self-assessment.
Your employer's scheme details should tell you how this all works. If not, your employer's HR or benefits department ought to be able to help.
If you do have to reclaim tax withholding from the US for any reason, the way forwards is very likely going to be to file a full-on 1040NR "non-resident alien" tax return with the IRS for the year(s) in question. Not something for the faint-hearted, and best avoided.
(*) If you are a US citizen, dual or otherwise, then anything might happen, ignore my notes above about a W-8BEN and a 1040NR, and you very likely have much deeper problems than just this one!0 -
Unless you have failed to complete a W-8BEN, the tax withheld is UK tax plus NIC.0
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The usual way things work here is that your employer sets some highly conservative withholding rate to cover them for UK income tax and NI, perhaps 35% tax plus 15% NI, and tells the US broker to withhold that and send it to them. They will then put the vested shares' value through normal PAYE payroll, and you perhaps get a small boost in pay a month or two after the shares vested, this boost being a refund of the over-withholding (that is, the difference between the 50% withheld and your actual UK tax and NI liability).
I was looking to exercise (and immeditely sell) some options in an ex-employer based in Switzerland. The broker (Equitex) were withholding 47% of the difference between the proceeds of the sale of the newly acquired shares at market price less the strike price. I was gobsmacked. The 47% will be 35% with holding tax plus 12% NI.
The scheme documentation (from 2009) only said that UK income tax plus national insurance was payable, so I expected only to have to declare this on my self-assessment and pay the appropriate taxes, which would be fair enough.
@EdSwippet, do you know if the best way to reclaim any possible income tax is via my next SA form or are there other ways? Given that I am a self-employed contractor and thus don't pay NI, is it possible to reclaim the NI back too and if so how? The guy from Equitex was not very helpful. Simply told me to see my tax advisor.0 -
From your posting, I assume that you were a full employee of this company when the options were granted to you, but are now no longer employed there but self-employed instead?I was looking to exercise (and immeditely sell) some options in an ex-employer based in Switzerland. ... do you know if the best way to reclaim any possible income tax is via my next SA form or are there other ways? Given that I am a self-employed contractor and thus don't pay NI, is it possible to reclaim the NI back too and if so how?
If that is the case, then as I understand it the income you receive from exercising and selling these options is treated as 'deferred income' from your prior employer, meaning that you are on the hook for both NI and PAYE on it in the exact same way as if you were still an employee. That's certainly the situation I have found myself in, in the past.
As far as the NI is concerned then, likely not fully recoverable, although your ex-employer should refund anything if your actual liability here was less than 12%. The only full NI refunds I'm aware of are for cases where employers or someone else has erred in making NI payments.
The tax element should work itself through a combination of your ex-employer's PAYE payroll and you completing self-assessment after April, resulting in -- probably, depending on your other income and circumstances -- again some refund of over-withholding, either from one or both of these sources. There are ways to get a refund of grossly over-withheld tax out of HMRC earlier, but I'm not sure if this would qualify for any of them. It might depend on how much is at stake here.
Either way you will want to chase down full payslips and a 'Statement of Earnings' from your ex-employer, since under these circumstances they are not going to issue either a P60 or a P45. In my experience, obtaining these after leaving an employer can be difficult, even though providing a payslip is a UK legal requirement. At least you might console yourself with having perhaps built up a tiny bit more state pension entitlement out of the unexpected NI you had to pay.0 -
Thanks, Ed.
Correct, I was a full employee at the time of the grant and am now self-employed contractor (my own business). ironically working back at the original company (where have you heard that before?).
So could this "deferred income tax" be reduced via VCT purchase? That is, does the effective tax paid (witholding tax minus rebate to take it back to income tax level) get treated by HMRC as income tax?
No consolation on the NI front as I already pay myself enough to get the full year's contribution. I'll treat it as a donation to charity (without the income tax relief). :-)0 -
Be careful about what you mean by 'effective' tax paid.So could this "deferred income tax" be reduced via VCT purchase? That is, does the effective tax paid (witholding tax minus rebate to take it back to income tax level) get treated by HMRC as income tax?
Your employer withheld 35% of your sale for income tax. At the next payroll run (or perhaps the one after that; it takes time to arrange these things) they should reconcile this 35% withholding with what they are supposed to withhold and pay over to HMRC under PAYE based on your tax code and so on. If that comes out to (say) 25% then you get 10% back as a pay cheque.
However, that 25% isn't necessarily your tax liability on this either. Once you complete self-assessment this 25% is 'UK tax taken off pay' and you get credit for having paid it, but you might find that other income has pushed your actual liability on this marginal income up to 30%, leaving 5% to pay to HMRC. Or maybe your other earnings are really low and so HMRC owes you yet more refund because 25% was still over-withholding.
In other words, you don't know how much income tax you actually have to pay on this until late into the tax year, perhaps not even until after its end when you complete a self-assessment return.
So be very wary of trying to 'offset' a tax figure you may not actually be facing. Additionally, I don't 'do' VCTs, so if there are any timing issues or other catches specific to these then I won't know about them.
Finally, you should probably check all of this with your ex-employer's payroll/benefits departments. What I've described is my experience at one employer. It's reasonable to assume that the rules are the same for all of them, but the diversity of employer share options schemes may mean that not all of what I dealt with will translate across to your case. Perhaps even none of it.0 -
As I don't work for them any more, the company would not know what my tax code is unless they ask HMRC to provide that information to them. I assume then that they will provide the company with that information so they can put it through their payroll. And then any anomalies get sorted out at the SA stage.
Many thanks for your detailed response.0 -
if an employer has to make a further payment to someone who has by then left the requirement is the employer uses the 0T code on a non cumulative basisAs I don't work for them any more, the company would not know what my tax code is unless they ask HMRC to provide that information to them. I assume then that they will provide the company with that information so they can put it through their payroll. And then any anomalies get sorted out at the SA stage.
Many thanks for your detailed response.
it would then be your responsibility to sort out any over or underpaid tax with HMRC yourself as part of your annual tax review
the employer is not required to get anything from HMRC. Whether an overseas company would know that is a different question...
https://www.gov.uk/employee-leaving0 -
The company in question has a large footprint in the UK, so it should not be a problem for them. I will let the fiscal wheels of fortune turn. Thanks all for responses. Am always impressed by the level of knowledge on these forums.0
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