ESPP and LTIP shares from US company in E*TRADE account, questions

ESPP and LTIP shares from US company in E*TRADE account, questions

 

1. What’s the best way (tax / fees / exchange rate efficient) to sell them?

2. What will she need to fill in on a tax return when it gets to it?

3. Is there anything else in addition to the info below I need to check/find out to decide on 1 and 2 above?

 

I’m trying to help someone out and I’ve tried looking this up on here (and HMRC) and find it difficult to get my head around it (they have no chance!), so am hoping someone can break it down more easily step by step for me (in simple terms).  I’ve read all the scheme info from her company and E*TRADE account and it seems pretty vague and passes the buck.

 

She’s a UK citizen working in the UK for US company, paid in GBP.  

She pay’s tax at 40% rate, doesn’t earn enough to hit 45% rate (She salary sacs so just over £40k p.a. goes into pension).

 

She puts 10% of salary into an Employee Share Purchase Plan, US shares are purchased every 3 months (next at end of July) at a 15% discount (approx. £2k worth in a quarter), in a US E*Trade account.

Payments made from net pay.

Black out period for about 2 weeks either side of the purchase.

Approx £20k’s worth in the account at present (she’s been doing it for a couple of years, the total value is roughly the discounted purchase price).

I presume CGT is paid on any increase from the purchase (vesting) price if above the CGT threshold and the price at grant is pretty much irrelevant.

Is there any benefit for holding them for a set period of time?

 

She’s also just been added to the companies Long Term Incentive Plan (spread over 3 years) where she receives 50 shares at no cost every 3 months (probably just under £1k’s worth in USD, the first tranche is due to vest in August).

Based on reading – at vest I presume this is taxed at the appropriate US rate then there is part of the UK Self-Assessment form that gets it back (or doesn’t pay more).

I presume the US tax is on the increased (total) value of the shares (like income tax) at the vesting point, then UK CGT due (if above the annual limits) would be paid on any difference between the vesting price and sale price and again the grant price is pretty much irrelevant.

 

She’s never sold any, so to reduce fees/tax is the best way to sell and transfer the funds to a wise account (she doesn’t have one yet)?

Is there a way (or time frame) to shift it into to ISA to avoid the CGT?  It won’t be enough yet to breach the CGT threshold but might if the company gets taken over – which has been muted for years (or she don’t sell any this tax year).

 

She wants to keep the shares because of the sale possibility, I think she’d be better off selling each time asap (to try to limit any share price and currency fluctuation to bake in the benefit) and putting the money into something else (because the sale has been talked about for years) but that’s not something that matters too much to the original questions.

Thanks in advance for any responses.

P.S. if this would be better in the savings and investments sections, mods please can you move it. 

Comments

  • kinger101
    kinger101 Posts: 6,280 Forumite
    First Anniversary Name Dropper First Post
    edited 21 July 2023 at 5:21PM
    If you're working for a US company but via a UK subsidiary, then some of it may work itself out though a combination of witholding taxes and PAYE.

    Tip 1.  Never hold shares in your employer.  If they tank, you lose your job and the share value crashed.

    Tip 2.  If you must hold them, sell and rebuy in a tax wrapper like SIPP or ISA.

    Tip 3.  Following a recommendation on here, I set up a Wise account to receive USD sale proceeds.  Then converted to GBP in Wise and wired to my UK account.  Wiring direct from E-Trade to a UK account lacks transparency in rates, but Wil be expensive.
    "Real knowledge is to know the extent of one's ignorance" - Confucius
  • EdSwippet
    EdSwippet Posts: 1,588 Forumite
    First Anniversary Name Dropper First Post

    She’s also just been added to the companies Long Term Incentive Plan (spread over 3 years) where she receives 50 shares at no cost every 3 months (probably just under £1k’s worth in USD, the first tranche is due to vest in August).

    Based on reading – at vest I presume this is taxed at the appropriate US rate then there is part of the UK Self-Assessment form that gets it back (or doesn’t pay more).

    Based on reading where? This looks to me like the shares will be RSUs. And RSUs are generally taxed as ordinary employment income (PAYE) when received.

    For someone employed by a US company but otherwise with no US connections (not a US citizen, not a US green card holder, not a US resident), there should be no US tax liability. If there is any US tax withholding for some reason, that should be reclaimed from the US rather than the UK - Article 14 paragraphs 1 and 2 of the UK/US tax treaty.
  • EdSwippet said:
    Based on reading where? This looks to me like the shares will be RSUs. And RSUs are generally taxed as ordinary employment income (PAYE) when received.

    For someone employed by a US company but otherwise with no US connections (not a US citizen, not a US green card holder, not a US resident), there should be no US tax liability. If there is any US tax withholding for some reason, that should be reclaimed from the US rather than the UK - Article 14 paragraphs 1 and 2 of the UK/US tax treaty.
    Thanks, you're correct they are RSUs and her company sold 20 of the 50 shares to pay the UK tax and NI.
  • kinger101 said:
    If you're working for a US company but via a UK subsidiary, then some of it may work itself out though a combination of witholding taxes and PAYE.

    Tip 1.  Never hold shares in your employer.  If they tank, you lose your job and the share value crashed.

    Tip 2.  If you must hold them, sell and rebuy in a tax wrapper like SIPP or ISA.

    Tip 3.  Following a recommendation on here, I set up a Wise account to receive USD sale proceeds.  Then converted to GBP in Wise and wired to my UK account.  Wiring direct from E-Trade to a UK account lacks transparency in rates, but Wil be expensive.
    Thanks, it did work itself out. I agree with Tip 1 and Tip 2 (still need to convince her), and she has just set up a wise account.
  • EdSwippet
    EdSwippet Posts: 1,588 Forumite
    First Anniversary Name Dropper First Post
    Kernowshep said:

    I presume CGT is paid on any increase from the purchase (vesting) price if above the CGT threshold and the price at grant is pretty much irrelevant.
    Just to pick up on this point, yes, but with some complication.

    The 'cost' of a share is its price in USD at vesting, converted to GBP but at the forex rate in effect on the date of vesting. Similarly, the proceeds of a share is the USD received, converted to GBP at the forex rate in effect on the date of sale. The capital gain is the difference between these two GBP numbers.

    Calculating all of this across multiple RSU vesting and sale dates, and then getting all of that to work with HMRC's 'section 104' pool rules can be a bit of a bear. All easiest, of course, if you're well within the (shriveling) capital gains allowance.

    There's no special tax or other benefit to keeping these shares for any particular period.

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