Nicholas Stretch: All change for UK tax of expat employee share awards


From 6 April 2015, the UK taxation and national insurance contributions (NIC) treatment of share option gains and other employee share awards held by internationally mobile employees is changing.

The new treatment affects options and awards already granted because it applies regardless of when options or other awards were made, and so it is, in effect, retrospective. The main impact is for employees who were not UK resident at the time they received their award or option. 

While the change may be conceptually fairer than an all-or-nothing approach, it is a major structural overhaul of the taxation regime in this area and organisations with internationally mobile employees need to recognise the coming change.

The current position is that the UK tax treatment of employee share options and other share awards principally depends on the residence position at the time of the award. If the employee is a UK resident, or shortly to become a UK resident, at that time, the entire gain on exercise or vesting is capable of being subject to UK income taxation. However, if the employee was not a resident, no UK taxation is payable on exercise or vesting.

From April 2015, rather than look to the position at the time of the award, the legislation will look at the position over the entire vesting period.

Employees who exercise options or receive shares and have in the vesting period been a non-UK resident will generally be taxed on the basis of UK duties or time spent in the UK in the period between receiving the award and the award vesting.

A similar approach will apply where they have been a resident but have limited ties with the UK and so are only taxed if the relevant part of the gain is brought into the UK during the so-called ‘remittance basis’.

The relevant amount of the gain will normally be worked out on a time-apportioned basis. The tax treatment of options will therefore be aligned with the taxation of cash bonuses, which are earned over several years.

Since the changes are retrospective, someone who has come to the UK since being granted an option would, in principle, be worse off in UK tax terms if he or she exercised their option after April, when the time spent in the UK since the grant of the option would lead to a time-apportioned gain being taxable, as opposed to before April when the option gain would not be subject to tax at all.

Equally, some who have left the UK might be better off delaying exercise or vesting until on or after 6 April. However, the basic position is made more complicated by the effect of double treaty relief and so each case needs to be looked at separately. 

Nicholas Stretch is a partner at law firm CMS Cameron McKenna