Do you pay Tax on RSU`s?

Increasingly both myself and my team are asked about the taxation treatment of restricted share units, or as they are more commonly referred to as RSUs. Below I have outlined the basics of what more than often is a complex area, I hope you find it useful.

Often shares/units in an employing company abroad, like the US, are granted to their UK resident employees who may hold these grants until a ‘vesting’ date in the future. When these shares 'vest" certain UK taxes are often due like income tax, national insurance, and capital gains tax. 

The grant itself is not taxable. UK-based payroll staff are only in general taxed by their payroll staff when the grant of shares 'vests'. So, the shares are valued and income tax and NICs are withheld by payroll depending on the salary level of the employee. 

The completion of Form W-8BEN by the UK taxpayer informs the US agent e.g. usually a US broker, that a foreign person is claiming a reduced rate of tax withholding in the US or an exemption from withholding taxes because they are non-resident. This goes to the agent/broker to handle.

This form then applies the double tax treaty relief dividend rate withholding rate and reporting applying to UK individuals in respect of their RSU dividend payments made in the US.  

On the date of ‘vesting’ the market value of the shares is determined as the closing quoted share price on the vesting day. The agent/broker can and usually does sell sufficient of the vested shares to ensure that the UK payroll tax and NICs is met as this is treated as pay rather than capital gain at this stage.

If you would like Tax Matters to help you with your personal tax affairs then please call on 01442 828006 or contact me at jreeves@taxmatters