Im a UK resident and the US company I work for have over the last 5 years as part of my remuneration given me stock options which are all at various stages of vesting and are managed by Fidelity. I have also completed my W-8BEN form.
When i enquired about selling some of them today i was informed there would be a 47% tax applied to the sale which seemed very high, considering the UK tax implications as a result of cashing them in.
Does this sound correct as i have read in numerous posts that a rate of c 10-20% being the norm?
Could anyone advise as im at a loss to understand my position?
It would depend on what scheme it is and whether it is HMRC approved or not. Depending on the scheme “cashing out” the shares mean they could be considered as income for tax purposes by HMRC which would result in a 47% tax rate you are being quoted if you are in a higher tax band.
You will likely need to seek independent financial advice regarding this.
I have been in a similar situation, working from the UK for an American company - first private, and then public. Their share scheme was not HMRC approved, so all shares were taxed as income upon exercise, but subsequent gains were taxed as capital gains. It’s quite straightforward, and good tax planning can be incredibly helpful. What helped me sleep better at night when first learning about the UK tax rules was having a professional chartered accountant with experience walk me through the process.
I recommend David Gough @ Dixon Wilson
I assume the reason why 47% is they are probably thinking 45% income tax + 2% NIC. IMO you should also ask your employer about this as they should be able to explain it. Alternately, see if they will pay for you to seek personal tax advice? Pitch it as a retention investment!
Just to echo other comments: yes, that was my experience too, it’s treated as income. You should expect to realise <50% of the sale price. Here’s an example that is taken from my Morgan Stanley account:
Edit to add that it’s worth noting the taxes are due upon vest and so if you decide to hold on to the shares, you will need to pay the taxes out of pocket. I don’t know what Fidelity offer, but Morgan Stanley offer 3 options:
Sell to cover (i.e: sell enough of the vested shares to pay the taxes)
Sell all
Pay the taxes in cash
You do not choose to “cash in” the shares, you cannot hold on to them to avoid taxes and benefit from appreciation, they are taxable income at the moment that you control them.
10-20% is the capital gain rate (excluding property), 10% for basic rate, 20% for higher rate taxpayers. As others have said, the share scheme may classify them as income instead because they are part of your remuneration which would result in a higher rate. Definitely worth seeking advice.
Hi JimmyJ, i probably didn’t say the 47% tax was what i was told i would pay to (Presumably) the IRS, i would then pay additional tax once net proceeds are back in the UK (Capital Gains/Self Assessment)
