LTIP and earnings over £100k

Coco2024

Hi, Hoping for some advice as I'm a bit confused.
My earnings for this tax year 2023-2024 will be just under £100k, I calculated this carefully and have been paying extra into my pension to keep the earnings below the £100k threshold. However, I have just found out that an LTIP I was issued in 2021 will vest in March (this is a surprise as the previous year didn't vest and I was expecting the same this year as the company hasn't been performing too well). This creates a problem I think because I know it is classed as income (this is the first time I've had an LTIP vest so I'm not 100% sure). My company will take the tax and NI equivalent at source from the number of shares and I will be issued with what remains. So the vesting amount is ~£4k, I assume they will take 42% for tax and NI leaving me ~£2,300 net. My question is, will I now have to complete a Self Assessment tax return for the additional £4k which will be above the £100k threshold, even though my company will have taken tax and NI on it?
Any advice gratefully received - thank you.

[Deleted User]

If your income is over £100000 you need to do a tax return regardless of how much tax or NI was paid. 

[Deleted User]

JamesRobinson48 said:

I'm certainly no expert. But I thought one of the standard criteria for self-assessment is increased from £100k to £150k starting with the current tax year:

https://www.gov.uk/government/publications/agent-update-issue-108/issue-108-of-agent-update#sa-threshold-change

(See extract below.  My emphasis).

This may or may not help OP depending on the other criteria stated below.

-------------------------------------

Self Assessment threshold change

From tax year 2023 to 2024 onwards, the Self Assessment threshold for customers taxed through PAYE only, will change from £100,000 to £150,000.   

Affected customers do not need to do anything now as the Self Assessment threshold for 2022 to 2023 tax returns remains at £100,000.  They will receive a Self Assessment exit letter if they submit a 2022 to 2023 return showing income between £100,000 and £150,000 taxed through PAYE and they do not meet any of the other criteria for submitting a Self Assessment return.

For the 2023 to 2024 tax year onward customers will still need to submit a tax return if their income taxed through PAYE is below £150,000 but they meet one of the other criteria for submitting a Self Assessment return, such as:

• receipt of any untaxed income
• partner in a business partnership
• liability to the High Income Child Benefit Charge
• self-employed individual and with gross income of over £1,000

You are correct - I’m forgetting what tax year we are currently in! 

Jeremy535897

From 2024/25, the limit is abolished altogether.

Coco2024

Thank you. That’s really useful to know.
The LTIP won’t be issued through PAYE though will it (again - I’m assuming as I’ve not had one before) although it will be taxed. So I think I don’t meet any of the criteria for completing a SA tax return.

 I’m still unsure if this affects me losing part of my personal allowance and being hit at some point for the additional tax? If it’s not declared via SA how does the total tax get calculated? 

[Deleted User]

Coco2024 said:

Thank you. That’s really useful to know.
The LTIP won’t be issued through PAYE though will it (again - I’m assuming as I’ve not had one before) although it will be taxed. So I think I don’t meet any of the criteria for completing a SA tax return.

 I’m still unsure if this affects me losing part of my personal allowance and being hit at some point for the additional tax? If it’s not declared via SA how does the total tax get calculated? 

If it is taxed it is very unlikely that it will be at anything other than at 20% rate. Clearly it should be taxed at 40% AND you will lose some of your personal allowance. So, you will be underpaid and, at some point, you will receive a calculation showing any underpayment. 

You could log on to your personal tax account and choose ‘PAYE’. There is a section where you can add income from an additional source but, unfortunately, nowhere to enter the tax deducted. 

Best option is to ring them, ideally at 8am when they are least busy. 

Ammah45

Of course you don't need to cash your LTIP after they vest. Keep them as shares for now until the new financial year. Then you can increase your pension contributions by a small %age to stay below 100K. 

Coco2024

@Ammah45 I think it's irrelevant whether I sell them or not. It's the value I am being given (~£4k) that is counted as income. Once they are given to me (in March) I am classed as having the income, even if they sit as shares in a share account. If I subsequently sell them, then it is no longer income tax but Capital Gains tax I would need to consider.

Ammah45

Coco2024 said:

@Ammah45 I think it's irrelevant whether I sell them or not. It's the value I am being given (~£4k) that is counted as income. Once they are given to me (in March) I am classed as having the income, even if they sit as shares in a share account. If I subsequently sell them, then it is no longer income tax but Capital Gains tax I would need to consider.

Ok, that's not how mine works but I guess they are all different. I only get taxed when I exercise the sale and cash the shares. 

EdSwippet

Ammah45 said:

Coco2024 said:

@Ammah45 I think it's irrelevant whether I sell them or not. It's the value I am being given (~£4k) that is counted as income. Once they are given to me (in March) I am classed as having the income, even if they sit as shares in a share account. If I subsequently sell them, then it is no longer income tax but Capital Gains tax I would need to consider.

Ok, that's not how mine works but I guess they are all different. I only get taxed when I exercise the sale and cash the shares. 

From reading between the lines, it appears that you have been granted stock options, but the OP has RSUs (restricted stock units). They are different things:

Restricted Shares vs. Stock Options: What's the Difference?

Restricted shares and stock options are both forms of equity compensation, but each comes with some conditions.

Restricted shares can either be restricted stock units or restricted stock awards. Both involve vesting requirements. For instance, restricted stock awards deliver shares outright, along with the rights and privileges of a shareholder. Their owner may receive dividends and vote at the annual meeting. However, the company may reserve the right to buy back unvested shares if the employee leaves the company.

Stock options give an employee the right to buy a certain number of shares at an exercise price in the future. Like restricted shares, stock options often have vesting requirements. The employee may get a windfall if and when the company's stock price exceeds the exercise price and they exercise the options.

Coco2024

Yes, I have two options at vesting: my company will sell enough shares on my behalf to cover the tax liability and I keep the remainder of the shares or they will sell all the shares, take enough to cover the tax liability and deposit the remaining cash balance into my bank account. 

I find it all very confusing to be honest!