Share Awards – All change for Internationally Mobile Employees

In a move to simplify the tax treatment of share awards, the Chancellor confirmed in March’s Budget that changes are on the way for internationally mobile employees who change countries between the grant and vesting of share awards.

The existing rules lack clarity across different types of awards and often result in anomalies. For example, a restricted share award granted to a non UK resident will generally escape UK tax on vesting, even if that employee comes to the UK to work. A UK resident employee, however, would be taxable in full on the share award, even if he becomes non resident in the period between grant and vesting (assuming there is no double taxation treaty).

The new rules, which will apply to share awards realised after 6 April 2015, address this by recognising a “relevant period” (normally from grant to vest) for most awards. This period splits into the part which is earned whilst in the UK and that which is earned whilst overseas.

The portion of the share award taxable in the UK, will be an amount which broadly equates to the relevant time actually spent working in the UK. This means that employees who have been granted share awards before arrival in the UK, will be taxed under the new rules, based on the share profit earned whilst working in the UK.

Where there is a UK tax liability the employer is likely to have an obligation to meet the corresponding PAYE charge. Currently this charge is required to be recovered from the employee up to 90 days from the taxable event. The new rules allow this period to be extended up to 90 days after the end of the tax year.

Although the new rules are welcomed by those seeking a simpler tax system, there is likely to be additional taxing consequences for individuals and reporting costs for companies. Employers need to think about updating existing communications to employees to reflect the changes, and amend systems and processes to better track the taxable portion of awards going forward.

We are here to help you through this process. For a better understanding of how this might affect you or your business, please get in touch with Lynn Gracie or contact us.