UK citizen vs US RSUs

NikY72

Help!
My husband works for a multinational company who give him a certain amount of RSUs. We’re now in the situation where his tax code is 0 as, according to the HMRC, is pay for last year was over £140,000 because of these RSUs which vest through his pay. Unfortunately, his actual pay is £72,000 he does not receive any money from the vested RSUs due to the withholding of tax. Does this mean his tax code is correct?

EdSwippet

NikY72 wrote: »

My husband works for a multinational company who give him a certain amount of RSUs. We’re now in the situation where his tax code is 0 as, according to the HMRC, is pay for last year was over £140,000 because of these RSUs which vest through his pay. Unfortunately, his actual pay is £72,000 he does not receive any money from the vested RSUs due to the withholding of tax. Does this mean his tax code is correct?

Based on the information given, his tax code is probably correct, though it could in fact be worse -- a code starting with K is a 'negative' allowance.

When you say your husband "does not receive any money" from the vested RSUs though, that sounds like a misunderstanding of events. When RSUs vest, a proportion of them -- perhaps as much as 50% or even higher -- are sold immediately by your employer or broker to cover income tax and national insurance. The rest, though, will arrive in your husband's brokerage account, where he is then free to sell them for cash. In this sense, they are 'income' and so come laden with both a tax and a national insurance liability.

As for the tax code, this is at best an educated guess by HMRC to try to get about the right amount of tax paid through withholding across the year. Your husband should be filling out a tax self-assessment each year, and any inaccuracies in tax codes will get reconciled when he does this, either with a refund or with more tax due.

The bottom line here is that vested RSU's count as taxable income, just income that you receive as shares rather than as cash. If you need (or would simply prefer, for any other reason) the cash you should sell the shares you receive as soon as they vest. That way there will be no capital gain (or loss), no more tax to pay, and you'd have spendable cash in your pocket.

One final thought. At this income level your husband's marginal tax rate is an effective 60%. He should probably consider putting more into a pension, if possible. That could be a very tax-efficient move.

NikY72

Thank you so much for such a concise and clear explanation �� he now has a negative k tax code as HMRC have realised he should have had the 0 tax code from April. We have increased pension contributions and cashed in some shares to offset the tax bill we got last year. This is waaaaaay more complicated than my basic understanding of tax! We did self assessment last year for the first time. And we’ll keep on top of the shares- he can only cash them in at set times of the year and we didn’t cash any in for about 4 years due to not really understanding how they worked. His accountant thought he had to pay income tax on shares cashed in initially? I’m wondering whether to find a specialist accountant? Is there such a thing?
Thanks again for your answer, sorry for the delay.

btcp

Income tax is paid at vest, you don’t need to pay it again. Normally the default tax election is “sell to cover” which means the company sells almost half of your RSU to cover income tax immediately, the rest you get as shares and free to keep or sell yourself. On the portion you sell there is no income tax implications. You will pay capital gain tax if you get profit or can claim tax back if you lose money. I am at my first year with vesting stocks and not sure I need an accountant, seems clear if you dig the information around - including this forum.