Vesting Stock Options Double TAXATION

Saitantry

I would appreciate feedback on my tax status if anyone has some insight.

I have  stock options from my employer which, once vested, I will sell. Company I work for is listed in New York Stock Exchage (NYSE).

I have completed a W8-BEN form which should make me exempt from paying US taxes, but it is not clear as in the past when I sold my stock options, I get paid a smaller amount into my UK bank account after deduction. So, my question is what is the deduction for?

I was under the impression that we have a tax treaty with the US and that should exempt UK residents from double taxation.

I would like to know what the steps are I need to follow to make sure I minimise my tax burden.

 

wmb194

Saitantry said:

I would appreciate feedback on my tax status if anyone has some insight.

I have  stock options from my employer which, once vested, I will sell. Company I work for is listed in New York Stock Exchage (NYSE).

I have completed a W8-BEN form which should make me exempt from paying US taxes, but it is not clear as in the past when I sold my stock options, I get paid a smaller amount into my UK bank account after deduction. So, my question is what is the deduction for?

I was under the impression that we have a tax treaty with the US and that should exempt UK residents from double taxation.

I would like to know what the steps are I need to follow to make sure I minimise my tax burden.

Even after filling in that form you still have to pay 15% on dividends. What was the size of the deduction? Sometimes you have to pay income tax on share options and perhaps it was withheld? Does your company provide any documentation relating to the scheme?

EdSwippet

Saitantry said:

I have completed a W8-BEN form which should make me exempt from paying US taxes, but it is not clear as in the past when I sold my stock options, I get paid a smaller amount into my UK bank account after deduction. So, my question is what is the deduction for?

Sold, or exercised (and held)?

Usually, this deduction would be some estimate (made by your company) of withholding for UK tax and NI. These combined could be quite high; for example, over 50% is quite possible. Most companies use a flat withholding rate here for all employees, and then put the actual value of the options on sale, and after conversion from USD to GBP, through their normal payroll system. This usually results in you receiving some cash the next payroll cycle to balance out the over-withholding.

Option exercise in the UK is treated as ordinary PAYE income. There's not a great deal you can do to lower the tax on options specifically, just the usual tactics for reducing tax on PAYE income generally, for example higher pension contributions, especially if in 40% tax, doubly so if in the outrageous 60% effective bracket above £100k.

Your employer's payroll department should be able to detail how they handle this for you. As long as you have filed a W-8BEN with your US broker, you won't pay any US tax on option exercise or stock sales. If you exercise and hold, though, and your stocks pay a dividend, you will lose 15% of the unavoidably to US tax. You can take a credit for that on your UK tax liability on this dividend. On sale, if you have a capital gain you won't pay any US tax on that, but you would be liable for UK capital gain tax (or alternatively, taking the loss).

george4064

You should get a breakdown of the actual and potential deductions as part of the selling or transferring out process.