Capital Gains Tax on Staff Share Scheme Proceeds - Moving Abroad?

babetak

Hi everyone,

I'm hoping to get some clarification on capital gains tax (CGT) implications for my staff share scheme. I'm a dual UK citizen working for a private UK company in London. We have a generous staff share scheme where investments can potentially double (or more) within about four years. I plan to use these proceeds for retirement, as I haven't accrued sufficient pension qualifying years in any single country due to living and working abroad. My best-case scenario is 10 years of UK NI contributions, which would only entitle me to 10/35 of the full state pension – not enough to live on.

Given the recent CGT changes, I understand I'd likely pay 24% tax on profits when the shares pay out (currently estimated in about two years). I'm considering moving to an EU country with 0% CGT on assets held for over three years, which this investment will be.

I spoke briefly with someone via Unbiased, who suggested I might still be liable for UK CGT even after moving abroad and becoming tax resident elsewhere. They didn't sound entirely confident, though.

Could anyone confirm if this is possible? Specifically:

• What are the exact steps and timings involved in such a move to avoid UK CGT on these share scheme proceeds?
• Do I need to formally notify the UK government of my move and new tax residency status?
• The UK tax year runs from April 6th to April 5th, while my target EU country uses the calendar year. Does the timing of my move in relation to the share payout matter? Do I need to move before the payout, or is moving within the same tax year sufficient?

Any insights or experiences with similar situations would be greatly appreciated. Thanks in advance!

masonic

You'll probably find the following helpful: https://www.gov.uk/government/publications/rdr3-statutory-residence-test-srt/guidance-note-for-statutory-residence-test-srt-rdr3#statutory-residence-test-srt

CGT would apply when you sell the shares if you are resident in the relevant tax year. When do you currently plan to move abroad? If you exercise your share options while still in the UK, then you could transfer the resultant shares into a S&S ISA and then no CGT would be payable in the UK. You would potentially be unable to transfer into an ISA if you had already left the UK, even if resident for that tax year. But you could hold until after the end of the last tax year you will be UK resident.

babetak

masonic said:

You'll probably find the following helpful: (link)

CGT would apply when you sell the shares if you are resident in the relevant tax year. When do you currently plan to move abroad? If you exercise your share options while still in the UK, then you could transfer the resultant shares into a S&S ISA and then no CGT would be payable in the UK. You would potentially be unable to transfer into an ISA if you had already left the UK, even if resident for that tax year. But you could hold until after the end of the last tax year you will be UK resident.

Thank you for helping. These are not publicly traded shares as the company is a private company. The amount will be (much) larger than the 20 000 annual ISA allowance. I need to find out if I move away prior to the payout (I cannot influence when that happens - it will happen when the company decides - probably 2 years from now as per company's guidance) and sign out of the UK tax payer system by being a tax resident in a different country, whether indeed then I would be paying tax on the profits under the country's tax laws where I will be residing in the EU. This is critical for me to the point that I will move primarily for this reason so I need to set it up and time it just right. 

masonic

babetak said:

masonic said:

You'll probably find the following helpful: (link)

CGT would apply when you sell the shares if you are resident in the relevant tax year. When do you currently plan to move abroad? If you exercise your share options while still in the UK, then you could transfer the resultant shares into a S&S ISA and then no CGT would be payable in the UK. You would potentially be unable to transfer into an ISA if you had already left the UK, even if resident for that tax year. But you could hold until after the end of the last tax year you will be UK resident.

Thank you for helping. These are not publicly traded shares as the company is a private company. The amount will be (much) larger than the 20 000 annual ISA allowance. I need to find out if I move away prior to the payout (I cannot influence when that happens - it will happen when the company decides - probably 2 years from now as per company's guidance) and sign out of the UK tax payer system by being a tax resident in a different country, whether indeed then I would be paying tax on the profits under the country's tax laws where I will be residing in the EU. This is critical for me to the point that I will move primarily for this reason so I need to set it up and time it just right. 

There are a number of different types of scheme with different mechanics and rules. I was under the impression you were on some sort of defined timetable. But if it is a private company, is it not the case that you will need to wait until a financial transaction for the company in which the share capital is bought out? I guess it is not a SIP scheme, which is a shame as the payout could otherwise have been tax free. It would not be SAYE either, as that involves buying the shares at the end of a savings contract period, even though I thought that sounded like the best fit initially.

There seems to be a contradiction in the latter part of your post. You seem to be saying you cannot predict when you will leave the UK. There is also possibly some uncertainty as to when your scheme will crystallise its payout. So I don't know how you propose to time it just right. It seems everything is outside your control and you just need to be able to figure out what you owe, if anything, when all of the facts are known.

It is also entirely possible that between studying the various scenarios and having them actually play out the rules could change.

babetak

masonic said:

babetak said:

masonic said:

You'll probably find the following helpful: (link)

CGT would apply when you sell the shares if you are resident in the relevant tax year. When do you currently plan to move abroad? If you exercise your share options while still in the UK, then you could transfer the resultant shares into a S&S ISA and then no CGT would be payable in the UK. You would potentially be unable to transfer into an ISA if you had already left the UK, even if resident for that tax year. But you could hold until after the end of the last tax year you will be UK resident.

Thank you for helping. These are not publicly traded shares as the company is a private company. The amount will be (much) larger than the 20 000 annual ISA allowance. I need to find out if I move away prior to the payout (I cannot influence when that happens - it will happen when the company decides - probably 2 years from now as per company's guidance) and sign out of the UK tax payer system by being a tax resident in a different country, whether indeed then I would be paying tax on the profits under the country's tax laws where I will be residing in the EU. This is critical for me to the point that I will move primarily for this reason so I need to set it up and time it just right. 

There are a number of different types of scheme with different mechanics and rules. I was under the impression you were on some sort of defined timetable. But if it is a private company, is it not the case that you will need to wait until a financial transaction for the company in which the share capital is bought out? I guess it is not a SIP scheme, which is a shame as the payout could otherwise have been tax free. It would not be SAYE either, as that involves buying the shares at the end of a savings contract period, even though I thought that sounded like the best fit initially.

There seems to be a contradiction in the latter part of your post. You seem to be saying you cannot predict when you will leave the UK. There is also possibly some uncertainty as to when your scheme will crystallise its payout. So I don't know how you propose to time it just right. It seems everything is outside your control and you just need to be able to figure out what you owe, if anything, when all of the facts are known.

It is also entirely possible that between studying the various scenarios and having them actually play out the rules could change.

You are correct in saying I cannot influence when the company will pay out. They said they aim for 4 years but it could be less or it could be more. I invested in August 2022 so best I can predict is less than 2 years left. I don't think it's either of the schemes you mentioned. The private company I work for just issued some sort of shares that are valued at 0.0001/share initially which is the same as the outside investment partners TA Associates, Hg Capital, Gic are getting. In the FAQs it says: Current expectations are that any gain in your shares will be treated as a capital gain for tax purposes. 

What I am after is to answer 2 questions: 

1. If I move abroad, can I legally not pay the UK Capital Gains Tax and only tax this in the EU country I will be residing in? (I don't expect to come back to the UK for at least 10 years after) 
2. Do I have to move in advance of the payout or can I move out during the same tax year as the payout? Let's say they announce on July 1st, 2026 that they will pay out on August 15th, can I pack my bags and move then? 

The reason I am trying to answer these questions now is so that I can make the plan when to move and execute it properly. 

masonic

babetak said:

1. If I move abroad, can I legally not pay the UK Capital Gains Tax and only tax this in the EU country I will be residing in? (I don't expect to come back to the UK for at least 10 years after)

If you move abroad, and are not UK resident at all during the tax year the share capital is bought out, and do not return to the UK thereafter, then you would not be subject to UK CGT under the current rules. Probably the same if you spend more than a decade out of the UK (but that depends on future changes). As you are moving abroad for work, then probably the year you leave the UK will be a split year in which case you may not even have to be out of the country for the full tax year in question. You can determine this based on the SRT document I linked above and links therein.

babetak said:
2. Do I have to move in advance of the payout or can I move out during the same tax year as the payout? Let's say they announce on July 1st, 2026 that they will pay out on August 15th, can I pack my bags and move then?

See above, but maybe I misunderstood your previous post. I thought you were moving at the company's behest to work for them in a new location and they controlled the timing of that too. The bit I wrote above may not be so clear cut if you are planning to leave the UK and your employer.

What are you going to do if they announce on 1st March 2025? I was previously in a similar scheme that had an approx. 5 year horizon, and it was believed that would be the minimum. But the shareholders accepted a bid at just over the 3 year mark. Fortunately that was a tax free payout as it came without warning.

babetak

masonic said:

babetak said:

1. If I move abroad, can I legally not pay the UK Capital Gains Tax and only tax this in the EU country I will be residing in? (I don't expect to come back to the UK for at least 10 years after)

If you move abroad, and are not UK resident at all during the tax year the share capital is bought out, and do not return to the UK thereafter, then you would not be subject to UK CGT under the current rules. Probably the same if you spend more than a decade out of the UK (but that depends on future changes). As you are moving abroad for work, then probably the year you leave the UK will be a split year in which case you may not even have to be out of the country for the full tax year in question. You can determine this based on the SRT document I linked above and links therein.

babetak said:
2. Do I have to move in advance of the payout or can I move out during the same tax year as the payout? Let's say they announce on July 1st, 2026 that they will pay out on August 15th, can I pack my bags and move then?

See above, but maybe I misunderstood your previous post. I thought you were moving at the company's behest to work for them in a new location and they controlled the timing of that too. The bit I wrote above may not be so clear cut if you are planning to leave the UK and your employer.

What are you going to do if they announce on 1st March 2025? I was previously in a similar scheme that had an approx. 5 year horizon, and it was believed that would be the minimum. But the shareholders accepted a bid at just over the 3 year mark. Fortunately that was a tax free payout as it came without warning.

Wow - yes you are 100% correct! There is a real possibility that the investment will pay out sooner (even this year) as the previous rounds lasted 2 and 3 years only. This is the reason why I am trying to make a plan now. If I can be certain that moving abroad prior to the decision to end this round of the scheme will mean no CGT in the UK, I would honestly try to quit (I can stay invested in the scheme if considered a good leaver) and move as soon as possible. Worst case scenario would be if they announce the end of the scheme before I move. In this case, I would just take out a little bit of the profit and roll the rest over into the next round of the staff share scheme. This would mean that I would have to stay employed with the company for at least another year as per the scheme's rules and I could quit exactly 1 year after that and then move abroad to put this plan into action. 

masonic

I think there are a couple of assumptions there that need to be tested:

1) That you would be considered a 'good leaver' if you resigned. I obviously don't know much about your scheme, but in mine, I was advised that the default is to classify leavers as 'bad' with a few exceptions, such as having to stop work due to disability or ill health, or retirement at a normal retirement age.

2) That reinvesting in the next round of the scheme would allow you to avoid CGT on the proceeds of the current round. Again, I cannot comment on your situation, but when my scheme last paid out and I was given shares in the next one, I was sent a resolution to vote on for the company to lend one of the board a sum of money to satisfy a CGT bill they incurred from the previous scheme, but could not pay because they rolled over their investment in the new one. There were various classes of share involved in my case, but if you will be crystallising a gain upon which CGT would be due, I wouldn't have thought reinvesting in a new scheme would change that.

babetak

masonic said:

I think there are a couple of assumptions there that need to be tested:

1) That you would be considered a 'good leaver' if you resigned. I obviously don't know much about your scheme, but in mine, I was advised that the default is to classify leavers as 'bad' with a few exceptions, such as having to stop work due to disability or ill health, or retirement at a normal retirement age.

2) That reinvesting in the next round of the scheme would allow you to avoid CGT on the proceeds of the current round. Again, I cannot comment on your situation, but when my scheme last paid out and I was given shares in the next one, I was sent a resolution to vote on for the company to lend one of the board a sum of money to satisfy a CGT bill they incurred from the previous scheme, but could not pay because they rolled over their investment in the new one.

1) In ours, you are considered a good leaver always unless you do something that gets you fired. One of my colleagues was recently let go because they didn't need him anymore and they told him they would give him a lot of money (above and beyond) in severance pay OR he could get the statutory severance pay and keep his investment in the staff share scheme. 

2) I rolled over twice already and there was no tax liability as they didn't actually pay the money out to me but just moved it to the next round. They even once took out the yearly allowance (used to be 12 000?) and put it back through some accounting trick to decrease the taxable profit. 

masonic

Fair enough, although making an employee redundant usually makes them a "good leaver", whereas resignation is more of a grey area. You should probably see what is written in the shareholder agreement to be sure.

On the other point about reinvesting, if that is the case, then the main risk is that you leave (company and UK) just a little too late. But you could choose to stay and roll over the investment in that case. Presumably there would be some minimum period before which you could resign from that round with good leaver status. So the real question is how bad would it be if you had to stay in the UK for a bit longer than planned?

Bostonerimus1

You need to check that the share scheme is taxed for capital gains and not treated as income and then understand the Capital Gains Tax article on the relevant Double Tax Treaty. As the shares are in a private company and presumably not traded on a stock exchange I'd make sure how they are treated also I hope your second citizenship is not US as that would complicate matters.