Selling US stocks and CGT question

Jay888

Hey guys, I need some advice. Hopefully this makes sense and I hope I'm asking in the correct place

I have some stock that I exercised and held on to as shares. I now want to sell some shares, so that I can make use the CGT personal allowance for this year before April.

So, from the example below tell me if I have this correct( I've used round numbers to simplify it):

Say, I exercised some shares at the exercise price of 20, and market price at the time of exercising it was 100. So, I paid tax already on the 80 gain. I got that clear, I think?.

But here's my current situation. Say now the market price is 150. So, if I've understood correctly, i should only pay tax in this "new gain" (50 gain). Therefore, I should only sell a max of 246 shares( 12,300/50), as I will be within the personal allowance £12,300 CGT.?

I guess I need to factor in withholding tax, as these are US stock?

Any advice appreciated

EdSwippet

Broadly correct. On stock option exercise, the 'bargain element' -- that is, the difference between the option price and the exercise price -- is PAYE income, so usual UK tax and NI apply. Your employer will (should) take care of that through PAYE. When you sell, your capital gain is the difference between the exercise price (your 'cost') and the sale price. Okay so far.

For non-UK stocks though, a wrinkle. Your per-share cost in GBP is the share price in USD on the date of exercise, multiplied by the USD/GBP forex rate on the date of exercise. And your per-share sale proceeds are the share price in USD on the date of sale, multiplied by the USD/GBP forex rate on the date of sale. In other words, currency fluctuations feed in to your capital gain, either adding to it or subtracting from it. That might change your calculation of 246 shares a little.

There should be no withholding tax of any kind when you sell these shares. The US does not tax capital gains on shares held by non-US residents, and the UK does not have withholding tax for capital gains. (There would probably have been some UK withholding on exercise, but for these shares, that's now in the past.)

All this assumes that you are not a US citizen and not a US green card holder.

Jay888

EdSwippet said:

Broadly correct. On stock option exercise, the 'bargain element' -- that is, the difference between the option price and the exercise price -- is PAYE income, so usual UK tax and NI apply. Your employer will (should) take care of that through PAYE. When you sell, your capital gain is the difference between the exercise price (your 'cost') and the sale price. Okay so far.

For non-UK stocks though, a wrinkle. Your per-share cost in GBP is the share price in USD on the date of exercise, multiplied by the USD/GBP forex rate on the date of exercise. And your per-share sale proceeds are the share price in USD on the date of sale, multiplied by the USD/GBP forex rate on the date of sale. In other words, currency fluctuations feed in to your capital gain, either adding to it or subtracting from it. That might change your calculation of 246 shares a little.

There should be no withholding tax of any kind when you sell these shares. The US does not tax capital gains on shares held by non-US residents, and the UK does not have withholding tax for capital gains. (There would probably have been some UK withholding on exercise, but for these shares, that's now in the past.)

All this assumes that you are not a US citizen and not a US green card holder.

Hi, Thank you for your reply.

I think I need to work out the currency conversions that you mentioned, to get my head around it. But, if I have understood this correct, I would need to consider the fx rates on the date I exercised, to calculate how may shares I need to sell, to be within the CGT allowance?

I'm also glad to hear( this is news to me), that I do not need to pay any withholding tax, as I thought I would need to at 15%( asI completed a w8-ben form). And yep, I am a UK resident.

Thanks

bowlhead99

Jay888 said

I'm also glad to hear( this is news to me), that I do not need to pay any withholding tax, as I thought I would need to at 15%( asI completed a w8-ben form). And yep, I am a UK resident.

Withholding tax of 15% is a US tax withheld from income distributions being made from inside the US to investors outside the US  - i.e. dividend payments by the company. If you are talking about selling, you are simply receiving sales proceeds having sold your shares to another person on the stock exchange. This is not a distribution of income from the company to you, so the company doesn't get to withhold tax and pay it over to the IRS as a tax on your income - there is no income.

Jay888

bowlhead99 said:

Jay888 said

I'm also glad to hear( this is news to me), that I do not need to pay any withholding tax, as I thought I would need to at 15%( asI completed a w8-ben form). And yep, I am a UK resident.

Withholding tax of 15% is a US tax withheld from income distributions being made from inside the US to investors outside the US  - i.e. dividend payments by the company. If you are talking about selling, you are simply receiving sales proceeds having sold your shares to another person on the stock exchange. This is not a distribution of income from the company to you, so the company doesn't get to withhold tax and pay it over to the IRS as a tax on your income - there is no income.

Hi, Thanks for the clarification.
I believe here's where my confusion stems from. Previously, when I came to exercise the shares after they vested intially, I sold  some of them right away ( sell to cover) and  I was charged a witholding tax on the gain. Albeit, I managed to reclaim some back due to the double tax treaty. So I assumed this would be the case now.