Stocks and Stock Options Advice

madamobrien

I have got some (restricted) stocks and stock options from my US employer. They are managed in Fidelity NetBenefits. I've never done anything like this before and honestly I don't understand my position well. Where can I find an advisor to help me to understand the position better? I'm most interested in understanding the specific differences between my stock options and my restricted stock options and the tax implications. 
I understand these things in general, I'm looking to meet with someone to understand the specifics.

princeofpounds

If you want to speak to a professional, then you're probably best off talking to a personal tax accountant who will be used to seeing these things and their tax consequences.

However if you are confident enough with personal tax matters then you will probably find enough guidance from HMRC, on the phone/online/on their forum. Also, there will be someone in your firm who is familiar with how things work - usually a compensation manager in HR - who will able to help on the administrative side.

Stocks (aka shares) are just a share of ownership in the company, which I presume is listed i.e. publicly traded on a stock exchange(?) and has a daily price. Restricted stock units (RSUs) are basically a plan to give you a stated number of shares in the company when they 'vest'. Vesting means that you qualify to receive them - there can be various conditions but normally it's just the passage of time, for example, one third of the total 2020 award will vest each year over a period of three years. Often it is automatic, but sometimes you can choose when they vest after you qualify.

You are given RSUs rather than stocks directly because a) it forces you to stick around and wait for the shares if you want to receive them and b) it's an easier framework for planning within the company itself, which doesn't really affect you.

Stock options are a little different. They are a contract which promises to sell you a set amount of shares at a specific price (the 'strike price'), on a specific date in the future (or sometimes before a specific date, but that is less likely in your situation). If, on the date in question, the share price is above the strike price, you will choose to exercise the option because you will make a profit from buying below the current market value.

Exactly how these option agreements are settled can vary a bit. In theory, you would physically buy the shares with cash, and then receive the shares, then sell the shares (if you like) to end up with more value in cash or shares than the initial money you put in. But usually the scheme offers you the option to do it more simply and just receive the profit directly in either cash or shares - you still end up in the same end position.

The administration of this all depends a bit on exactly how the scheme is handled. I should imagine a lot of it will be done through the netbenefits platform in a semi-automated manner; you may be asked to make choices at key points, usually about whether you choose to receive shares or sell them to receive cash instead. If the proceeds are then paid to you through payroll then often the tax will automatically be handled too, but you will need to check that at the time. Don't fret too much about this as you can deal with any issues through the HMRC self-assessment process if necessary.

Why would an employer give you both of these? They do similar things but to different degrees. Both of them act as employee retention tools, but the RSUs can be more suited than the options for that because the options can be worthless if the share price falls below the strike price at the end of the option. They also act as a performance incentive, by linking your compensation to the success of the overall business, but the stock options can be more powerful for that because their value is more linked to positive stock performance beyond a particular target; if performance is bad, an RSU will still cost the company money to give you, whereas a stock option won't end up costing anything. 

I'm not going to go into detail on the tax rules as it depends on the details in many instances, and I'm not familiar with every facet, especially the various government programs that give some tax benefit if paid in this way.

You generally don't get taxed when these plans are awarded, as you haven't actually received any income yet. But usually there will be some form of income tax, and possibly national insurance, when you do (i.e. on vesting of the RSU or exercise of the option) whilst if you choose to hang on to shares and sell at a later date, you may also have to pay capital gains, but that's only likely if the share goes up a lot between vesting/exercise and sale, or the award is very large.

OldMusicGuy

I had RSUs with my last company. My company handled everything. As the RSUs vested, the tax and NI was handled through payroll as a nominal adjustment (ie I did not pay anything extra in terms of deductions) and any gain when they were sold was taxed as income. You should talk to your company's payroll/HR/benefits department, ours issued instructions about how these were handled for UK tax purposes and what we could expect to see on our payslips.

You should only need to employ a tax accountant if you are working for a US company that does not have a UK legal entity or any HR/payroll department in the UK.