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Selling my RSU's - What is the UK Tax implication?

edited 30 November -1 at 1:00AM in Cutting Tax
4 replies 1.1K views
DizgoDizgo Forumite
4 posts
edited 30 November -1 at 1:00AM in Cutting Tax
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.

Replies

  • EdSwippetEdSwippet Forumite
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    Welcome.
    Dizgo wrote: »
    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.
    Are you a US citizen or green card holder? This could dramatically change things. Unlike nearly every other country, the US taxes the worldwide income of its citizens and residents no matter where on (or off!) the planet they live.
    Dizgo wrote: »
    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.
    I'm assuming that you don't have stock options (ISOs, non-quals or anything else "exotic"), and that you simply own some stocks that you acquired with post-tax money. That would include stocks from RSUs that have vested, since as they vest the value of each vesting is included in your payroll as salary, for both income tax and NI purposes.
    Dizgo wrote: »
    What's the best strategy and timing on the sale to avoid as much UK tax as possible?
    Based on assumptions above, you should have no income tax or NI liability on the sale, only capital gains tax for the gain (assuming there was one!) in stock values since your RSUs vested, or since purchase in the case of any non-RSU holdings.

    For the UK, there is a £12k or so annual capital gains allowance before any capital gains tax is due, so phasing the sale over multiple UK tax years is one way to reduce or even escape it entirely. Unfortunately, you may have just missed the boat on using that allowance for the 2018/19 tax year (or maybe you fully used it already on something else).

    If you have the misfortune to be a US citizen or green card holder, you also have to contend with US capital gains tax. And unfortunately, the US has no tax-free allowance there, so even if you have no UK liability you might find that you have a US one. If you have both, you can get a credit for any UK liability against your US tax, but only up to certain limits, and inevitably you end up paying the higher of the two countries' tax rates, and being allowed only the lower of either country's allowances. US tax is fiendishly complex.
    Dizgo wrote: »
    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?
    Doesn't sound quite right. Are you a fully UK based employee, or a US based one on secondment? In other words, where is your base salary paid, UK or US? (If US and on secondment or other employer transfer, maybe look into your employer's 'tax equalization' policy, if any?)

    Either way, if you are resident in the UK (and not claiming 'non-domiciled' status -- are you?), you would pay UK capital gains tax. The UK will cheerfully tax gains that accrued long before you arrived if you sell an asset with a gain while resident. It's not alone in this; the US does the same, and worse.

    As mentioned above, you might then also have a US capital gains tax liability to contend with, depending on your citizenship or green card status. Also a potential US state tax liability. If this all sounds fiendishly complicated, that's because it could well be. Cleanest is if you have no lingering connections with the US. That may or may not be the case here.
  • DizgoDizgo Forumite
    4 posts
    Thanks Ed,
    - I'm a duel citizen, UK and US. I live and work as a full UK resident and citizen for a multi national company but for the UK part of the company... paid in pounds.
    - My stock is a combination of RSU's granted by my company and EPP stock that I buy each month.

    I'm not sure where i heard it, but apparently selling stock 30 days prior to a vesting date (october), is advantageous. Not sure why or if this is true.
  • edited 17 May 2019 at 4:46PM
    EdSwippetEdSwippet Forumite
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    edited 17 May 2019 at 4:46PM
    Dizgo wrote: »
    - I'm a duel citizen, UK and US.
    Ouch. From the point of view of minimising your tax here, that could be extremely unlucky.
    Dizgo wrote: »
    - My stock is a combination of RSU's granted by my company and EPP stock that I buy each month.
    RSUs are at least clean in terms of both UK and US tax. Your 'basis' (US) and 'cost' (UK) for capital gains purposes is simply what you paid for this stock. Ordinarily you could track that pretty easily, but with RSUs it can be a touch hard to uncover if it lurks in the minutiae of PAYE payslips and so on. It should however be identifiable from broker statements, since it's simply the stock price at the time of RSU vesting multiplied by the number of shares you received. For both countries capital gain (or loss) is the difference between this and what this bunch of shares is now worth.

    Edit to add: The UK requires you to cost-average everything, whereas the US allows first-in first-out, last-in last out, and average cost basis. Probably easiest to use average for the US too, to save this becoming hopelessly complex.

    When it comes to working out the capital gain though, you have to work in two currencies for the two countries. For both, the capital gain is the difference between your 'basis' converted to that country's currency at the rate in effect at the time of purchase, and your sale proceeds converted to that country's currency at the rate in effect at the time of sale.

    As mentioned already, you may well have a minimal or no UK capital gains tax, thanks to the annual £12k tax-free allowance. However, that won't cover you for US tax -- the US taxes every last penny of capital gains -- so you may well have a liability there.

    As to what you can do to minimise US capital gains tax, not a great deal, but try to avoid 'short term' capital gains by only selling stuff you have held for a year or more, since that way rates are much lower (0-20% versus 10-37%), and perhaps you can manipulate your income so that you fall into the 0% rather than 15% or 20% bracket (taking the FEIE might work against you there, though).

    Not sure about "EPP". Did you mean ESPP (employee stock purchase plan)? If so, there can be some tricky holding period requirements on these shares, depending on how the plan is set up in the US. Mess up on the holding periods and your US tax liability explodes. No UK tax issues with these that I'm aware of -- the UK simply does not differentiate between 'short term' and 'long term' holdings.
    Dizgo wrote: »
    -I'm not sure where i heard it, but apparently selling stock 30 days prior to a vesting date (october), is advantageous. Not sure why or if this is true.
    Perhaps to avoid tangling with complex US wash sale rules, only relevant in situations where there is a capital loss. No UK tax effect that I'm aware of.

    You probably want some paid and professional tax advice here. Being a US citizen complicates your tax situation exponentially. I'm just some random stranger on the internet, and you don't want to be relying on people like me because the US has some outrageous penalties for tax return mistakes that involve anything non-US.
  • DizgoDizgo Forumite
    4 posts
    Thank you, ED. This is a great help!
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