NIC class I election - paying taxes for selling company shares

Messiah9

Hi,

I'm employed with an American company and I work from UK. At the time of joining, I was granted restricted stock units (RSU) which follow a vesting schedule (1st batch can be sold after 1 year of vesting).

I want to know if there is anything I can do to save the amount of tax I pay on the shares I sell or any other provision to get a tax rebate or benefit in some way?

We use etrade.com at company for managing our respective accounts.

We also had to fill a W8-BEN form to prevent double taxation.

I am paying 55% tax when my RSU shares are sold in etrade automatically to cover taxes. This is the "sell to cover" option.

So let's say 100 shares vested. Then 55 shares will be sold for the purpose of tax automatically and I receive only 45 shares which I can choose to sell when I want.

Such high tax rate is ridiculous so I started digging into the tax structure followed by my employer.

The tax structure is:

Total tax: 54.59%

Class I NIC (Employer): 13.8%
Income tax 38.79% + Class I NIC (Employee) 2%: 40.79%

I went through the documents on the UK government's website to read more about NIC election and apparently, there is an option where the employer can legally transfer their liability of paying the secondary Class I NIC to the employee (once this is approved by the HMRC).

Refer page 4 here: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/517871/Employee_Share_Schemes-NIC_elections.pdf

More details here: https://www.gov.uk/government/consultations/employee-share-schemes-nic-elections

In the share grant acceptance document, there was a clause which indicated that the employee will have to pay the employer's secondary class I NIC contribution as well.

Kindly let me know if there's some way around it or to get a benefit.

Dead_keen

There is no way around it unless you and your employer agree that you don't have to pay the employer's NIC (***).

When you sell your shares, you can't include the employer's NIC in the base cost of the shares or in working out your capital gain.  So there is no benefit that way.

The numbers you have set out make sense for an additional rate taxpayer.  Just be glad you are not in the band where you lose your personal allowance (marginal rate is 67.52%) or you lose child benefit for three kids.

*** small print:
1. You won't pay the 2% if you are over state retirement age on vesting (but would still pay the 13.8%)
2. You won't pay any NIC is the shares are not "readily convertible assets" - listed shares are
3. No income tax or NIC is due for post-death vesting (but not the best tax form of tax planning, especially as IHT needs to be considered)

KingOfSnake

Calculation is pretty much right  - as the employer NIC election (transfer of employer NIC on the gain to employee) reduced the amount liable to income tax (PAYE) but not employee NIC. Employers do this as the employer NIC (13.8%) is a dead-cost to them and an unknown liability, so horrible from an accounting perspective i.e. as the value of shares go up, the potential gain goes up, their potential employer NIC bill goes up. So the Government (many years ago) allowed the NIC transfer election. I am a bit out of touch on it, but fairly sure it still stands. For example, your "gain" on the RSU is £100 per shares and you have 100 shares:
Gain         £10,000
EE NIC     £     200
ER NIC     £  1,380
                 £  8,620 (£10,000 - £1,380)
Tax 45%   £  3,879
                 £  4,631 'in-hand' - or an effective tax rate of £200+£1380+£3879 = £5459 or 54.59%. 
You have to earn it to pay it - not that it helps. The only other thing I would add is to keep an eye on your pension annual allowance - if you are already in the 45% band the annual allowance is tapered down, and you don't want to be hit with a 55% tax charge on your/your employer annual pension contributions.