Share incentives and internationally mobile employees

Posted by RM2 at 16:21 on 29 Mar 2015


For those of you lucky enough to jet around the world for work, hopefully business class, you may wish to know how your share incentives will be taxed following this year’s budget.

The basic rules of taxation remain the same but from 6th April 2015, your residence at the time your securities option was granted to you is now no longer a relevant factor.

To help explain this, it might be best to look back at what the position was before the budget.

Previously the rules were very complex, for example:

  • an internationally mobile employee who was granted an option while not resident in the UK, and then went on to exercise that option before 6th April 2015 and when UK resident was not subject to income tax in the UK at all;
  • an internationally mobile employee who was granted a right to shares that did not amount to a legal option while not resident in the UK was, if resident in the UK when he acquired shares, subject to income tax on the shares received as, usually, general earnings;
  • an internationally mobile employee who was resident in the UK when granted an option that was a legal option was subject to income tax on the exercise of the option (subject to the application of any double tax treaties) even if they were not resident at exercise.

In practice, because of the complexity of the provisions, most companies with large numbers of internationally mobile employees agreed with HMRC how inbound and outbound employees would be taxed in the UK for each specific type of award.

Now however, the question of residence is less crucial.

From 6th April 2015, an employee's residence at grant is no longer relevant to determining whether a securities option is a “legal” option and the internationally mobile employee will generally need to pay income tax if the employee was resident in the UK at any time between grant and vesting. The amount of income tax will usually be apportioned according to how much time the employee spent working in the UK between the date the option was granted and the time it vests, so employers will need to keep payroll records in order to identify this.

One thing that has remained the same is that any acquisition of securities arising outside contractual rights will be subject to income tax on the acquisition of the securities (for example a bonus paid in shares, or a non-contractual promise to gift shares at a future date).

This area is complex and you should seek specialist advice. Contact us on 020 8949 5522 for further help.