Shares - US witholding tax

Debt_Free_Chick

Just planning ahead here .....

I get shares as part of my bonus at work - free shares, which I have to wait for e.g. I was given 100 shares two years ago, and I get 1/4 of them each year for 4 years. The Americans call this "vesting".

I've just sold some and got $2,500

When the shares vested, shares equivalent to 41% of the value were sold and the proceeds retained by the broker as US witholding tax.

Under the US/UK double-taxation agreement, I understand that I can count the US tax as a payment towards any UK tax I'm due to pay.

1. Is that right? If, for example, my tax liability on the gain in the UK was £500 and the US tax witheld was £450, I would only have a liability for £50 UK tax?

2. I guess my annual CGT allowance applies here? If so, then my CGT liability is nil as the gain is only around £1,100 and I have no other gains. So will I effectively get the US witholding tax back? Offset against income tax?

3. Is the gain, for UK CGT purposes the date on which the shares vest (February each year) or the date I sell them (in this case, April this year i.e. last week). The reason I ask this is that I have some shares that vested in Feb 2007 which I didn't sell until April 2008. Should I have included the shares that vested in Feb 2007 on my tax return for April 2007? Or do I leave them until April 2009 as I sold them after 6 April 2008?

Thanks folks

cash99

You should have signed a form to avoid paying US withholding tax, however are you sure this is what happened. 41% withholding would have been the correct amount of UK higher rate tax and NIC, which should have been deducted from your salary under paye the month the shares vested.

On vesting you are liable to pay income tax and nic under paye through the payroll and you employer, assuming they have a uk estabishment is responsible for this.

When you sell the shares you are subject to CGT on any gain above the value on the vesting date.

You need to include the value of the shares as income on your tax return ( on the special share schemes pages) in the year in which they vest and an gain on the sale as a capital gain in the year in which you sell them.

Debt_Free_Chick

No forms, it's an online dealing account. There were restrictions as to who could opt out of witholding tax and I didn't seem to qualify.

Something did go through my payslip recently .... I'll need to check.

Looks like I need to make an adjustment to last year's return as some shares vested in Feb 2007 and I didn't include them on my tax return.

Thanks for your help - what you say seems logical. Thanks

Gambler

I have to fill in a form every couple of years as I hold US shares.