RSU Vested Options and Tax

michaels2411

Hi there,
I'm just looking for some clarification please. I work for a US company and have gained some RSU share options which have been vested for some time, but I have not exercised them.


These were granted to me at a price of $3 they are now worth $43. I'm a higher rate income tax payer and just looking to keep the tax burden down as much as possible when exercising these options.


Am I right in thinking that when I exercise these options I should exercise and HOLD, keep these for over 12 months so the gains ($40 per share) are treated as CGT as opposed to Income tax? If I sell straight away I believe I incur income tax against the gain.


Furthermore would the best strategy thereafter be to sell in blocks which equate to less than one's yearly CGT limit currently set at £11700 which will then see 20% tax seen as opposed to my income tax %?


If my understanding is totally off track then please feel free to correct me, any advice welcome.


Thanks!

jimmo

Normally, with US employers, a UK employee incurs an Income Tax liability when the RSUs vest and there's nothing you can do about that. The UK Income Tax liability is based on your "profit" , the difference between what you paid and the open market value of what you received. On this forum there have been some really good contributions from posters with a better understanding than me so I suggest that you use the search facility.
On the Cutting Tax home page, if you type RSU into the search box and hit "Go" you will find 16 threads (including your own). Spend a bit of time looking at all of them but I would suggest you concentrate on anything posted by EdSwippet. Another possible search term is "Fidelity", which seems to be the broker most commonly used for these types of schemes.

EdSwippet

michaels2411 wrote: »

I work for a US company and have gained some RSU share options which have been vested for some time, but I have not exercised them.

RSUs and stock options are two different things. RSUs are stock that you get given periodically, pay income tax on there and then, own, and can then sell or keep. Options let you buy stock at a fixed price, and you only pay income tax on the difference between grant and exercise when you exercise that option (that is, pay the grant price and then own the shares).

Can you clarify here? It's not clear from the above which you have. With both, you pay income tax and NI on the immediate gain when you take ownership, and then later capital gains tax only when you sell.

michaels2411 wrote: »

Am I right in thinking that when I exercise these options I should exercise and HOLD, keep these for over 12 months so the gains ($40 per share) are treated as CGT as opposed to Income tax? If I sell straight away I believe I incur income tax against the gain.

That's broadly a US tax rule, and it suggests you have been reading US-centric information on share holdings. If that's the case you should probably ignore some or all of it. In the UK -- and assuming you are not a US citizen or green card holder -- for non-UK approved share schemes (which this probably is) there is no one year or any other minimum holding period for capital gains tax. Capital gains are taxed at capital gains rates even if only held for the shortest period.

michaels2411 wrote: »

Furthermore would the best strategy thereafter be to sell in blocks which equate to less than one's yearly CGT limit currently set at £11700 which will then see 20% tax seen as opposed to my income tax %?

Not quite. If you stay under £11,700 of total capital gains in a year you will pay zero UK capital gains tax. Above that, you would pay 10% or 20% depending on tax bracket. Note that this is only for capital gains -- that is, the gain from the time you acquire the shares (RSU vesting or exercising an existing and already vested option) and the time you sell.

michaels2411

Thanks both for your replies, looked further into this and other threads and whilst I do have some options, it was the RSU's that were causing me headaches.


I had a 4 year vesting schedule and recieved RSU blocks at the start of each yeafr my payslip/P60 reflected these trenches of RSU's and therefore I paid Income Tax/NI on them.


My W8Ben form is filed and with the broker so I should I believe just be able to sell these RSU's as and when and fingers crossed not haver to pay Income tax/NI again.



Thanks though for your guidence. Alot of information I had read was relating to the US way of selling and holding to try to then incure CGT.

michaels2411

Sadly me again, anyone able to clarify something for me?


I sold 240 RSU's recently these were taken from a pot that i'd already paid income tax here in the UK on and was on my payslip every January.



As I say I sold 240 of these now for $10,771.20 I then see two deductions in my US brokerage account, one is for $744 (for the exercise of the RSU) and the second for $4712.78 (this one is unknown to me).



I'm at a total loss why on earth I pay income tax on RSU's then I exercise them pay money to exercise then see this $4712.78 also get taken. Anyone able to clarify this up to me would be really welcome. Thanks.

EdSwippet

michaels2411 wrote: »

I'm at a total loss why on earth I pay income tax on RSU's then I exercise them pay money to exercise then see this $4712.78 also get taken. Anyone able to clarify this up to me would be really welcome.

Nope. This makes no sense to me either, at least on the information given. Probably best to take this up with the broker, your employer, or both, I guess.