Tax on gifted shares (US)

Debt_Free_Chick

As part of my remuneration package, I get shares. Some are share options - and I understand how they work. I buy if the price is right, sell immediately, pocket the gain and that gets assessable under CGT.

In addition, I get "Restricted Stock Awards" or "Restricted Stock Grants" - these are the American terms as the company is US and this type of share plan is common there.

As part of my annual bonus, I'm awarded a number of RSGs. However, I don't own these immediately. Instead, they "vest" (US term, again!) over a period of time. Usually, one third vests each year after a 12 month wait. So, I was awarded 75 shares in 2007; 25 "vested" in 2008; 25 in 2009 and the remaining 25 will vest in 2010.

When the shares vest, ownership is transferred to me (before then, they are held in a trust-type arrangement, so the Company can't use them).

When they vest, the transfer of ownership to me (from the custodian) generates US witholding tax of 41%. This is paid by taking 41% of the shares, which the custodian holds back to pay the US tax. I then get the remaining 51% of the shares.

At this point I am free to sell them and simply pocket the gain - remember, that my acquisition cost is nil as these shares have been given to me - they are NOT options.

When the shares vest, however, the value is shown on my payslip and I can't work out what this means!

March 2009

Gross pay £13,180.56 (salary + bonus)
Tax paid £5,257.20
NIC £433.92

(My net pay was £7,720.09 but this includes a deduction of £270 for my season ticket loan and a further £247.23 for pension contributions).

The following amounts are also shown as "earnings" on my payslip, but not included in the gross pay.

RSG Tax & NIC £747.88
RSG Vesting £1824.10

Bear in mind, that I do not have cash in my hand for the RSGs and I did not receive the amounts stated (which is consistent with them being excluded from the gross pay figure shown on my payslip). Instead, shares were sold and I paid witholding tax in the US.

Three questions ....

What has been the effect of including the RSG amounts on my payslip? Presumably, because the US witholdiing tax is classed as "tax paid in the UK" under the double-taxation treaty?

How do I account for the RSGs on my tax return? Income or capital gains?

How do I account for the what I get when I actually sell the remaining shares?

I appreciate this is a specialised area, but with so many US companies operating in the UK I'm hoping that someone has experience on this and can help me get my head around it!

Thanks

Cook_County

These sound very standard RSUs with cliff vesting schedules. You are having standard 41% UK PAYE tax withheld (certainly not US) and possibly reflected in a complex way on the payslips.

The employer may help explain how to complete the share scheme pages.

Your cost basis is the value you are taxed on in the UK, your payroll should be able to help.