Share Incentive Plan and Stock Purchase Plan and Self Assessment

LZC

My employer operates both a Share Incentive Plan and a Stock Purchase Plan and I subscribe to both. 

Do I need to declare either or both in my self assessment tax return when (a) I just hold them within the plan and (b) if I sell them?

To complicate matters the dividends are American and subject to US withholding tax so the US will presumably be reporting it to HMRC.

The interest earned in the SPP is apparently taxable but the tax is deducted from my payslip. So do I need to declare dividends from my SPP shares in my self assessment? I believe I’ll need to pay CGT when I sell them.

For the SIP I believe there’s no CGT when I sell but I’ve been declaring the dividends on my self assessment which I now am doubting I needed to. 

On-the-coast

Assuming rules are basically same as with my employer…
SIP - free from div tax & CGT at sale. Don’t add to tax return. 

SPP - dividends are taxable, but as long as you have a W8BEN on file you can claim a credit against foreign tax withheld in US. 

SPP - CGT applies on sale. 

Now you refer to the SPP dividend being taxed through payroll in which case maybe the CGT would be too.   However - are you sure it’s the dividend being reported/taxed?   I’m my scheme I’m being taxed on the small purchase percentage incentive that the company gives me to encourage me to buy shares - and it’s that which goes through payroll, not the dividends - which are solely my responsibility to report. 

LZC

Thank you. I don’t think it is the SPP dividend being taxed through payroll but the interest. I’m paid monthly so my contributions are monthly but the share purchases are quarterly.

On-the-coast

hmmm. Your scheme sounds like it has different rules to mine - so treat what I've said with a pinch of salt.  
The SIP element probably is the same as mine (a scheme where employee contributions to company shares of up to 150pm/1800pa are free of income tax going in... and CGT/Divident tax/incometax going out (as long as they're held for 3 years). 
But the other part (the SPP) sounds differerent, so you're going to need someone else to respond - though do check your scheme guides.

LZC

On-the-coast said:

hmmm. Your scheme sounds like it has different rules to mine - so treat what I've said with a pinch of salt.  
The SIP element probably is the same as mine (a scheme where employee contributions to company shares of up to 150pm/1800pa are free of income tax going in... and CGT/Divident tax/incometax going out (as long as they're held for 3 years). 
But the other part (the SPP) sounds differerent, so you're going to need someone else to respond - though do check your scheme guides.

Thanks you have been very helpful.

I think the SPP is similar to yours. There is a SPP benefit for the difference between the purchase price and sale price and CGT may be payable when you sell. The interest thing may operate slightly differently but that’s the one thing I’m actually clear about how it works!

My scheme guide doesn’t mention anything about SPP dividends being taxable other than saying you need a W8-BEN. I suppose default is that it needs to be declared. 

LZC

[Deleted User] said:

LZC said:

My employer operates both a Share Incentive Plan and a Stock Purchase Plan and I subscribe to both. 

Do I need to declare either or both in my self assessment tax return when (a) I just hold them within the plan and (b) if I sell them?

To complicate matters the dividends are American and subject to US withholding tax so the US will presumably be reporting it to HMRC.

The interest earned in the SPP is apparently taxable but the tax is deducted from my payslip. So do I need to declare dividends from my SPP shares in my self assessment? I believe I’ll need to pay CGT when I sell them.

For the SIP I believe there’s no CGT when I sell but I’ve been declaring the dividends on my self assessment which I now am doubting I needed to. 

SIP

Assuming it is one registered with HMRC then:

1. No need to do anything on self-assessment when acquiring the shares.

2. No gain if disposing of them immediately after taking them out of the plan some time after the five year period (or on becoming a good leaver).  May need to report the disposal (but still no gain) if exceeds £50k.

3. There are different rules if you sell within five years (and are not a good leaver).

4. Dividends.  Need to be reported / tax paid on tax return unless the dividends are used to buy "dividend shares" in the SIP (i.e. not separately by you personally).  You would be able to claim the minimum US tax that could be withheld against your UK tax liability (by minimum, I mean the rate under the UK/US DTA rather than what might have actually been withheld - any excess you can claim back from the IRS).

Your employer will almost certainly have a booklet that explains these rules in more detail.

SPP

This can take many forms but assume it is a s423 ESPP.  

1. Buying shares: Employer should operate PAYE on discount on acquisition and be included in P60.

2. Selling shares: CGT needs to be considered.  Base cost will be market value on date of acquisition.  You may need to use the CGT matching rules to calculate the gain so read up about them.

3. Dividends.  Again you need to reported / tax paid / foreign tax relief claimed on tax return.  It makes no difference whether US reports to HMRC it is your responsibility.

4. Interest.  It's rare for a s423 plan to pay interest.  If PAYE is deducted then it'll be on P60 and no need to report.  But check whether it is just 20% UK income tax (outside of PAYE) that has been withheld or US tax withheld.  If it is it would need to be reported as UK (or foreign) interest and you get credit for UK tax withheld at source (and would get credit for the minimum foreign tax withheld).

Your employer will often (but not always) have details of the UK tax treatment of the ESPP.

Thank you. That was clearer than our manual. 

SIP has dividend shares. 

For SPP Income tax is payable on the interest earned on contributions (at 45% for additional rate payers 40% for higher rate and 20% lower tax rate payers). For all employees this will be taxed at source via your payroll. 

So it seems SIP I don’t need to worry about tax unless I leave or get £50k’s worth. 

SPP need to consider CGT and declare dividends. 

LZC

Actually one more question as it’s US shares how do I need to handle the different reporting years?

Can I just use the figures from my 2023 W8BEN or do I need to look at the statements and then work out what the exchange rate at the time was?

On-the-coast

for exchange rates i generally save a copy with my calculations of the relevant month from using offical UK figures here:
https://www.trade-tariff.service.gov.uk/exchange_rates.
but as above... the importance is consistency... and once you done this one year, it becomes very easy the second time.  If you're doing a SA tax return it's non-obvious how you go about doing this imo... so good luck!  (non-obvious but "simple".  You won't get the simple fields you need until you "tailor" your return correctly in the preamble.