ESPP and RSU - Section 104 price calculation

I work for a US company and have US$ shares acquired through ESPP and RSU schemes.  Some I have sold, some I have held onto.  For each acquisition I have tracked the "Section 104" pool price so that I can asses each disposal. I have just realised that I have been tracking this price in dollars which is (probably) not the right thing to do.  Should I go back and recalculate at the prevailing FX rate for each of the (numerous!) transactions? 
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Comments

  • Should I go back and recalculate at the prevailing FX rate for each of the (numerous!) transactions? 
    Yes. 

    Also, I assume that you have no employment-related restrictions still attaching to any of those shares. If you do, the normal pooling rules are tweaked. 
  • RacingDriver
    RacingDriver Posts: 392 Forumite
    First Anniversary Name Dropper First Post

    Also, I assume that you have no employment-related restrictions still attaching to any of those shares. If you do, the normal pooling rules are tweaked. 
    Can you elaborate a bit more on this.  Say I acquire shares of my employer on a monthly basis, and they have to be held for three years before I am free to sell them.  How would this affect the pooling rules?

  • Also, I assume that you have no employment-related restrictions still attaching to any of those shares. If you do, the normal pooling rules are tweaked. 
    Can you elaborate a bit more on this.  Say I acquire shares of my employer on a monthly basis, and they have to be held for three years before I am free to sell them.  How would this affect the pooling rules?
    Have a look here: https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg56348
  • RacingDriver
    RacingDriver Posts: 392 Forumite
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    Thanks, I understand now that shares leave the restricted pool to join the unrestricted pool at the average cost of the shares in the restricted pool.

    If shares are acquired in a foreign currency, I convert to GBP using the relevant monthly FX rate here https://www.trade-tariff.service.gov.uk/exchange_rates.

    Is the average cost of the shares when leaving the restricted pool to join the unrestricted pool based on the average of the GBP acquisition values, or do I need to first average the foreign currency acquisition cost then convert to GBP?

    Then when I sell the shares I convert the sale price to GBP then subtract the average GBP acquisition cost (not foreign currency acquisition cost) to calculate CGT?
  • Thanks, I understand now that shares leave the restricted pool to join the unrestricted pool at the average cost of the shares in the restricted pool.

    If shares are acquired in a foreign currency, I convert to GBP using the relevant monthly FX rate here https://www.trade-tariff.service.gov.uk/exchange_rates.

    Is the average cost of the shares when leaving the restricted pool to join the unrestricted pool based on the average of the GBP acquisition values, or do I need to first average the foreign currency acquisition cost then convert to GBP?

    Then when I sell the shares I convert the sale price to GBP then subtract the average GBP acquisition cost (not foreign currency acquisition cost) to calculate CGT?
    That is right, you need to work out GBP values on acquisition, although being pedantic:

    1. You can use the actual exchange rate on the date of acquisition, or a published exchange rate on the date of acquisition.

    2. If you were charged to income tax on acquisition, while you owned them or on sale, you can increase your base cost by the amount subject to tax or get an extra deduction for that amount (technically more complicated than that).

    3. In some cases you can sell shares while they are restricted and so they never go into the general pool.

    4. You would have different restricted pools for shares with different restrictions.

    5. Special rules apply for shares acquired through the exercise of an EMI options (terms and conditions apply).

    6. Pooling is not relevant if the shares acquired through a SIP, and are still held in the SIP.



  • RacingDriver
    RacingDriver Posts: 392 Forumite
    First Anniversary Name Dropper First Post
    If a new restricted purchase is made on the same day as a previous purchase becomes unrestricted, does the average cost of the restricted pool include the purchase on the same day?
  • If a new restricted purchase is made on the same day as a previous purchase becomes unrestricted, does the average cost of the restricted pool include the purchase on the same day?
    Interesting question.  I think it depends on the restrictions. 

    If, for example, all the shares had a 12-month vesting period then:

    - the original restricted shares would vest at the very start of the day, and

    - other restricted shares vesting restrictions would be acquired some time later that day (e.g. when the paper work was signed to transfer them to you)

    So that would suggest that the first shares left the pool before the new shares were acquired.

    In my straightforward example though you would not, if you bought restricted shares monthly, have a single restricted share pool since restricted shares bought each month would have different restrictions to any other month's acquisition.

    Other restrictions may be different (e.g. if you had a minimum shareholding requirement).
  • RacingDriver
    RacingDriver Posts: 392 Forumite
    First Anniversary Name Dropper First Post
    In my straightforward example though you would not, if you bought restricted shares monthly, have a single restricted share pool since restricted shares bought each month would have different restrictions to any other month's acquisition.
    Looking at the CGT manual all restricted shares would form a single pool despite being acquired on different dates.
    https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg51580

    Shares that have the same restriction that applies for different periods form a single pool. For example, shares are issued to an employee that cannot be sold for 3 years; they are issued at 6 monthly intervals so the restrictions end at various dates. All the shares that are for the time being subject to the restriction should be treated as a single holding.
  • In my straightforward example though you would not, if you bought restricted shares monthly, have a single restricted share pool since restricted shares bought each month would have different restrictions to any other month's acquisition.
    Looking at the CGT manual all restricted shares would form a single pool despite being acquired on different dates.
    https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg51580

    Shares that have the same restriction that applies for different periods form a single pool. For example, shares are issued to an employee that cannot be sold for 3 years; they are issued at 6 monthly intervals so the restrictions end at various dates. All the shares that are for the time being subject to the restriction should be treated as a single holding.
    HMRC's manuals use examples to be helpful but they are not definitive. They tend to be simplified to show an illustration rather than show the full range of complexity.  The legislation talks about "the same restrictions" and so I've no issue with the first sentence.  The second sentence I struggle with a bit more as my imagination of what the facts of the example are may be are different to what the person who wrote this bit of HMRC's manual imagined. 

    You don't have to image as you know your facts.  I have no idea of them.  But anyway...

    If, for example, your restrictions were set out in a UK company's articles of association then that is likely to be a single restriction and so I'd agree with the rest of HMRC's example.  While unlisted companies might do this, UK listed companies would not normally put an employment-related condition in the articles and they would be set out in a separate document (e.g. an agreement between the employee and an EBT).  Typically each separate agreement that contains restrictions would be different (e.g. personalised as to dates, etc) and so they would generally not be "the same restrictions".  But I have no skin in this game and would be happy to be shown otherwise.

    My understanding is that this US listed companies would do something similar (i.e. not include employment-related restrictions in its articles of incorporation or bylaws).  It will depend on the facts, but where they are separate documents between the employee and the company (and in the UK, perhaps an the EBT) that happen at different times (e.g. 1 Jan 23, 1 Jan 24) then I'd typically not expect them to be "the same restrictions". 

    I don't know if your shares are in a UK or US company (or something else, like an interest in a profits interest in an LP), but outside of a SIP I've not seen a UK or a US plan where employees buy shares monthly (and these rules are not relevant for a SIP). I've seen plenty of s423 plans, RSUs, RSAs and plans that allow the exercise of unvested options.  The s423 plans and RSUs don't normally involve restricted shares.  The RSAs are normally free and people typically don't exercise unvested options monthly.  So I can't easily guess how your restrictions work and so feel free to tell me I'm right or wrong.
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