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Tax.appeal.168
Tax.appeal.168, Tax Accountant
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Experience:  Nearly 30 years of varied tax industry exp. Tax Biz owner
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I have some share options in an american company and I received them when I was working fo

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I have some share options in an american company and I received them when I was working for that company in UK (as part of a UK scheme). I have since moved to the US (for the same company, new contract) but I still own those share options... I would like to understand if exercising and selling the shares will be taxable just by US tax (as I've been a US tax payer for 2+ years now) or whether they would be taxable by UK given that I received them when I was a UK taxpayer.

Any help would be appreciated...
Submitted: 2 years ago.
Category: Tax
Expert:  Tax.appeal.168 replied 2 years ago.
Welcome, THANK YOU for using Just Answer. My goal is to help make your life...a little...LESS taxing.

If you are a U.S. citizen or a green card holder, you are taxed on your worldwide income. Regarding taxation in the U.K., the following applies:

Taxation of Stock Options

The Notes to the Tax Treaty also include guidance on avoiding double taxation of income earned from the exercise of stock options granted to employees who worked both in the US and the UK. In particular, the Notes state that any benefits, income or gains enjoyed by employees under stock option plans fall within the scope of Article 14, as a form of “other similar remuneration.” This is applicable where an employee:

has been granted a share/stock option in the course of employment in either the US or the UK;

has been employed in both the US and the UK during the period between the grant and exercise of the option;

remains employed by the US or the UK employer at the time the option is exercised; and

under the US and the UK tax laws, would be taxed by both the US and the UK with respect to such option gain.

The Tax Treaty provides that the home country, i.e., in this case, the country in which the stock options were granted but in which the employee no longer resides, is to tax only the pro-rata portion of the income based upon the period of time from the grant of the stock options to the exercise of such options in which the employee was employed in the home country.

REFERENCE SOURCE:

http://www.weil.com/news/pubdetail.aspx?pub=8292

----------------------------------

A portion of Article 23 (Elimination Of Double Taxation) reads as follows:

(1) In accordance with the provisions and subject to the limitations of the law of the United States (as it may be amended from time to time without changing the general principle hereof), the United
States shall allow to a resident or national of the United States as a credit against the United States tax the appropriate amount of tax paid to the United Kingdom;

Link to full tax treaty:

http://www.irs.gov/pub/irs-trty/uk.pdf

-------------------------------------------

My apologies, but I need to leave the computer for approx. an hour, maybe a little longer. If you require further clarification, I will be glad to assist you upon my return.

Thank you again for using JUST ANSWER.
Customer: replied 2 years ago.
My understanding from your reply is:

1. I will have to pay tax both in UK and US (although not cumulatively but proportionally)
2. The proportion is calculated based on the amount of time spent on either side from the grant date.
3. From your reference of Article 23, I understand (imply?) that I will have to declare the entire taxable amount to the US tax as well as the amount I paid to UK tax and IRS will give me a refund for that amount?
4. I assume that I may need to do something similar in UK?

Can you confirm / clarify my understanding?

Thanks and appreciate your help.
Expert:  Tax.appeal.168 replied 2 years ago.
Hello again,

You are welcome. Thank you for your patience.

1. I will have to pay tax both in UK and US (although not cumulatively but proportionally)

A: Yes, this is my understanding as well. In the U.S. you can claim a Foreign Tax credit for any taxes paid to the U.K. by completing Form 1116.

Link to Form 1116/instructions:

http://www.irs.gov/pub/irs-pdf/f1116.pdf
http://www.irs.gov/pub/irs-pdf/i1116.pdf

--------------------------------------

2. The proportion is calculated based on the amount of time spent on either side from the grant date.

A: The pro-rata portion of the income is based upon the period of time from the grant of the stock options to the exercise of such options. (The time period between the time the options were granted and the time that your exercise them).

----------------------------------------
3. From your reference of Article 23, I understand (imply?) that I will have to declare the entire taxable amount to the US tax as well as the amount I paid to UK tax and IRS will give me a refund for that amount?

A: Yes, as the U.S. will tax you on your worldwide income, you will report the taxable amount to the U.S. The amount that you pain in taxes to the U.K. will be reported on Form 1116 (Foreign Tax Credit), referenced above.

-----------------------------------------
4. I assume that I may need to do something similar in UK?

A: You will need to file a return in the U.K. to report the pro rata portion of the income, and pay the tax amount due. Again, as you are now a resident of the U.S., the taxes that you pay to the U.K. will be credited back to you through the use of Form 1116. I will check to see if there is anything further that you need to do relating to the reporting in the U.K.

Please let me know if I have addressed your concerns.



Expert:  Tax.appeal.168 replied 2 years ago.
If you are not resident in the UK you will still have to declare income you receive from UK sources or gains you make from assets in the UK, and you may have to pay tax on them. If HM Revenue & Customs (HMRC) sends you a Self Assessment tax return, you must complete it. If you don't receive a tax return and you think you should complete one, you must contact HMRC.

------------------------------------

You have made a capital gain in the UK

If you are not UK resident and sell, give away, transfer or exchange an asset in the UK (such as property, shares or other investments), you need to report a capital gain only if either or both of the following applies:

it is in connection with a trade in the UK
you are ordinarily resident in the UK

You don't have to report any other gains you make in the UK unless you return to the UK within five full tax years of going abroad. If you return within five years, and you were resident in the UK for at least four of the seven years before you became not resident, you'll have to pay tax on all your gains made while you were abroad. This does not apply to gains on assets acquired and disposed of during the period of non-residence.

If you have to declare a capital gain, you should send the following completed forms to HMRC:

form SA100 Tax Return
supplementary form SA108 Capital Gains
supplementary form SA109 Residence, remittance basis etc

You can refer to the following HMRC webpage for more information that may be beneficial to you:

http://www.hmrc.gov.uk/international/tax-return.htm

Tax.appeal.168, Tax Accountant
Category: Tax
Satisfied Customers: 2566
Experience: Nearly 30 years of varied tax industry exp. Tax Biz owner
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