US RSUs for UK citizen - taxed twice?

MadAboutFines

Hi,

I'm about to sign a tax return that doesn't feel right and I just wanted to check if anyone had any experience of how US RSUs are taxed. I worked for a US tech company for most of '17/'18 and in that time, just over $35,000 of RSUs vested from an overall joining grant of $80,000, the remainder of which is now void as I have left.

At vesting, the RSUs were taxed heavily by withholding RSUs and so in reality I probably received $20,000 worth of shares at most, which I have sold over time. The shares did increase in value in the period between being awarded and vesting, and between vesting and selling, but not more than $3-4,000.

On my final payslip, my former employer is calculating for: £34,412 'RSU Gain' and adding this to my taxable income. Other RSU related entries under this heading include:
NI tax relief on gain : c£5,500
RSU net cash: £643

and then in the lower section of my payslip where my tax payments are listed, we have:
eer's NIC : c£5,500 (again)
RSU Net gain: c£19,300
and then separately tax and national insurance.

Does anyone understand what's happening here? The addition of the RSUs has taken my overall pay for '17/'18 over the £100k mark so I have found myself losing my PA and in debt to the tax man retrospectively over RSUs that I thought had been taxed at source....?

Any thoughts appreciated!
-

EdSwippet

MadAboutFines wrote: »

The addition of the RSUs has taken my overall pay for '17/'18 over the £100k mark so I have found myself losing my PA and in debt to the tax man retrospectively over RSUs that I thought had been taxed at source....?

Without going through the numbers too closely here, this jump into the nasty 60% tax bracket is probably the cause of your problems.

When employers give out RSUs that vest, they have to juggle things about to cover PAYE and NIC. They usually withhold some 50% or more of the shares to pay these (my ex-employer actually used 57% withholding, yours seems lower?), and then reconcile everything a payslip or two later, when the stock price is nailed down and so on.

They will use the same rate for every employee; no attempt to adjust it for anyone's individual circumstances. If their guess turns out to be under for you and if PAYE does not or cannot get things spot-on later, you get to make up the extra when self assessment rolls around.

The PAYE system does not cope well with this 60% bracket. After the first occurrence you usually get an amended tax code that will spread payment throughout the year (and if this was a one-off for you, you will want to watch for that and perhaps correct it so that you don't overpay tax next year). The first year it occurs though, it's always an unwanted and unpleasant surprise. Evasive action such as increasing pension contributions or simply working less is only possible if you see it coming before the end of the tax year.

You do need to watch US brokers, to make sure that they are not taxing UK employees in these schemes as if US ones. So, a W-8BEN on file, typically. And watch for things like 'state tax withholding', 'FICA tax', 'medicare tax', and so on. Mostly, employers are careful to make sure that US brokers handle their UK employees correctly though, so unless you made a mistake with some of the paperwork here you should be okay.

The tl;dr is yes, your RSUs were already taxed by the UK (and not the US), probably just not taxed by the UK heavily enough to account for the horrible 60% effective tax bracket from loss of personal allowance.

MadAboutFines

Thanks Ed - yes I did have a W-8BEN file so luckily haven't been taxed in the US as well. The way you explain it, it does sounds like this is what's happened; I took my eye off the ball and went into the 60% bracket without realising and am paying for it now. Thanks again for your advice.

Dizgo

I've been in the UK for nearly 2 years now and I'm considering buying a flat as I may be here for some time.
To cover the downpayment, I will need to sell a big chunk of my RSU's as well as other stock i have in my US ETrade account.
What's the best strategy and timing on the sale to avoid as much UK tax as possible?
My company sells a portion of my stock to cover the US tax so i shouldn't be taxed other than capital gains in the US? is that right?
No idea what the implication will be in the UK on the sale, but I do know that making a wrong move will cost me a lot in UK tax.
Any advice on this would be much appreciated.

agrinnall

My advice would be to start a new thread of your own to avoid answers being given to the original issue, which seems to have been resolved.