Selling US shares in the UK

Louhop

Hi there. Please can anyone help with the following query?

My husband has been given a number of shares through his work as a bonus/reward. These have gradually built up and we are now looking at selling some to finance home improvements. We sold some a few years ago but it was a very small amount and we didn't really look into the process properly. Reflecting on the sale statement now I can see that we only ended up with approx 34% of the original share value - we paid 55% US tax on the total value of the shares plus commission. We had assumed that as UK citizens we would pay the usual 20% capital gains plus commission. Can anyone advise if the 55% tax charge was correct and if so whether there is a way around this? My husband has completed a W8-BEN form. Many thanks.

trevman

Can his work not advise the best/cost efficient way to sell the shares?

bostonerimus

If these shares were part of your husband's pay they will be taxed as income.
Where was he resident when he earned these shares and was there a vesting period?

Louhop

I've given up waiting for him to find out this information which is why I am now trying to do it....I wish it was as easy as getting him to ask his work the best way to do this.

He has always been a UK resident. Yes there was a vesting period - he will be allocated a certain number & they vest quarterly over a period of time. Approx half have already vested & there is a similar number vesting over the next 3 years.

bostonerimus

Was your husband an employee of the US company directly or a UK subsidiary or a contractor?

bowlhead99

55% marginal rate of tax does not sound right. And you mention only getting 34% of the original share value, which would be total 66% deduction after what you think is US tax and commission, so something doesn't stack up. Any commission on sale of the shares isn't going to be 10%+. By "of the original share value" do you mean, what they were worth when originally granted or do you mean the value of the sales proceeds when they were sold on the open market - these will be different numbers because the share price in the market changes daily.

Generally what happens for a UK employee getting 'paid' in US shares is that he has to have a deduction of UK tax and NI at marginal rate (i.e. 42% or 47% if he's a 40% or 45% taxpayer) on the value of the shares or options at the time they vest. Then if they increase in value you might have tax to pay on the gain but that's usually between you and the taxman, not deducted by a broker.

The 20% you refer to is what happens if you buy or otherwise acquire a share and sell it for more than it cost you. But in this situation it's not like it 'cost you' £0 and you go from there. The company didn't sell them to your husband for £0 out of the goodness of their heart. The 'free' shares were part of his UK earnings (assuming he earned them by working in the UK) so he needs to pay UKt ax & NI on them at what they were worth when he got them (i.e. when vested) and then he can pay CGT on the gain, if any, from that point on.

I've given up waiting for him to find out this information which is why I am now trying to do it....I wish it was as easy as getting him to ask his work the best way to do this

Finding the answer to how it works *is* as easy as him asking his employer for whatever materials or basic explanation of tax they gave him when they offered him the chance to join the scheme or explained what it meant to receive shares or options in the US parent company. They will generally / always have something written down, even if they caveat it by saying "if in doubt speak to your tax advisor."

If the problem is just that your husband doesn't care whether he paid the right amount of tax on part of his earnings because it was 'free money' and he is too lazy or otherwise too busy at work with other stuff to spend five minutes emailing HR or the finance dept or whomever gave him the bonus (some of which is not yet vested, so it wasn't exactly decades ago), to ask how it works, tell him to grow up.

Speculating by asking around on the internet and reading all the tax literature you can find on every type of UK and US approved and unapproved tax scheme to try to work the maths back to the percentage deduction you are seeing on a statement from a sale a few years ago, might be a fun little exercise for you to spend your time on, but it probably isn't very practical when he could just ask someone, "hey, I am planning to sell enough shares to raise some money for something I want to buy, and need a reminder of the guidance on the tax I would pay on shares I got through this scheme please'.

Brynsam

One for the employer. Waste of time asking here with so few facts to go on.

EdSwippet

bowlhead99 wrote: »

55% marginal rate of tax does not sound right.

It is actually in the right ballpark for tax withholding, though. My ex-employer used a 56% rate. The rationale was 40% for tax, 14% for employer NI, and 2% for employee NI. While the US broker implemented the withholding, the amount withheld actually travelled from them to my ex-employer, and from there via their usual payroll process to HMRC. No US tax or US withholding, even though it looked a lot like there was on the broker site.

As a general rule, this 56% withholding rate was usually -- or more likely, was constructed by my ex-employer so as to almost always be -- higher than the actual PAYE tax liability plus NICs. The employer would then refund the over-withholding as normal salary (cash) through a subsequent payroll cycle.

Opaque, confusing, and long-winded, then. The shift in currencies in the middle of all this does nothing to aid transparency, either. I had to badger my employer to obtain the forex rate they used for this withholding. (It was pretty much mid-market, but you never normally get to see it.)

bowlhead99 wrote: »

And you mention only getting 34% of the original share value, which would be total 66% deduction after what you think is US tax and commission, so something doesn't stack up.

Yup. Shrug.

bostonerimus

If the OPs husband got these shares for work for a US employer while in the UK then UK income and payroll tax will be due on their sale. The W8-BEN should avoid US tax, but make sure there is no US withholding, US entities have been known to ignoring tax treaty 0% withholding rates. Also make sure no US FICA is withheld if the US company is involved

Louhop

Thank you for your replies everyone. It is clear that I will need to persevere with my husband asking his employer the right questions.

I appreciate your help. Thank you.

bostonerimus

Louhop wrote: »

Thank you for your replies everyone. It is clear that I will need to persevere with my husband asking his employer the right questions.

I appreciate your help. Thank you.

Just as a general question how does your husband's US employer comply with UK tax and employment rules? Is he a contractor or is there a UK division that employs him?