cautiousjon

Hi,

I am expecting to move to California on an L1 visa towards the end of this year. I currently have some ESPP stock that I got fairly recently that I'm not expecting to sell before I come to the USA. As I understand, I would normally have to pay US income tax on the ESPP discount (of 15%) if I sell the shares whilst residing in CA, but can apply for a foreign tax credit to counteract this, for the amount of income tax that I have already paid to HMRC on these shares. Can anyone confirm this?

Would it be worth selling the shares before I enter the US to avoid this situation (aka complicated mess)?

Thanks very much,
Jon

Owen778

ESPP (Employee Stock Purchase Plan) is a US term. Are you actually in the US scheme as a UK resident? That would seem a stupid thing for your company to do, when they could have set up a UK Share Incentive Plan (SIP), where contributions are made pre-tax and capital gains are tax-free for UK residents.

If you're actually in a UK SIP or similar scheme, then I'd recommend you sell the shares. I didn't sell mine, and I regret it since the capital gains are taxable by the IRS but not HMRC. If you're in a US-based scheme and it's a significant amount of money, you should consult with a qualified CPA who knows the tax rules for ESPPs. My suspicion is that if it's a US tax-advantaged scheme, there would be no reason to sell early, but I know nothing about ESPPs beyond what Wikipedia just told me.

Lucybell33

We're in a very similar situation and our tax consultant from Deloittes advised us to sell before we move to California.

cautiousjon

My company has offices in over 40 different countries, so to make the ESPP program simpler, it's the same (American) system for every employee in every country where it is offered. It is managed by eTrade, which handles the distribution of shares and local taxation at the buy point (but not sell), in conjunction with the company's HR division.

Very interesting, thanks! May I ask, did the tax consultant give you any specific reasons for this? Did s/he also cover RSUs? That topic is a whole lot more complicated than ESPP...

Owen778

Fair enough. My US-based company was willing to set up a SIP scheme for an office of, at most, 25, and I'm very glad they did.

Some of us were also included in the US restricted stock award scheme too. I can see why it might be complicated, but I'm not sure you have much option of acting differently unless you exercise your stock awards rather than them vesting automatically. What questions did you have?

Lucybell33

I think it was due to there being no double taxation agreement at state level (only federal), so we'd end up paying CA tax as well as UK tax. The same applied to our vested RSUs.

cautiousjon

I did some quick reading about SIP and I don't think that it would apply in my case, because it looks like the shares have to be in the company that you are employed by. My company sets up each office (or all offices in one country) as a separate entity, and only offers shares in the parent corporation. I am not employed by the parent corporation.

I have no choice of acting differently. I just wanted to try and work out the tax charges that I'll pay on my RSUs. I've resigned myself to the fact that I'll probably lose most of it. I have a fair chunk of money tied up in RSUs but HMRC and IRS both want their (very large) share. My UK RSU tax rate is about 45%, let alone whatever the IRS will charge.

Ah, ok. If I only have to pay CA income tax, I don't think that I'll end up paying a huge amount. However, it seems easier to just sell the shares, profit from the discount and then put that money to another use.

Owen778

I don't think that's the case. I worked for the wholly-owned UK subsidiary, and we were still able to buy shares in the US parent through an HMRC-approved SIP.

But that's only true if the restricted stock vest while you are liable to taxation from both the US and UK. And in any case, they are covered by the dual taxation treaty even if you were.

If you are correct about your tax rate in the UK, then the rate will be lower if they vest while you're in the US, though likely not by much.

cautiousjon

Sure, if that's the case, it's just a case of my company not offering that benefit.

I will be liable to pay UK tax on all the RSUs that have been granted so far, because UK charges tax on all RSUs that have been granted while being employed in the UK, which is all of it so far. It's great if I can write off the US RSU tax liability against whatever RSU tax that I have to pay the UK. I imagine that it'll be a lose-it-and-then-claim-it-back-later type of deal.

Owen778

Well, both countries tax it as income, so you should hopefully be able to avoid paying it twice.

Bear in mind that you'll have no other UK tax liability after the end of this tax year, so the UK tax rate would also be much lower.

cautiousjon

Ah yes, I completely forgot that as a British citizen, I'll continue to receive a UK personal allowance, even when not resident in the UK. This will more than cover any UK tax liabilities on future vesting RSUs that have already been granted whilst living and working in the UK.

nun

British citizenship isn't a factor in your taxation. You'll be taxed as a US resident. If you have UK assets you might be liable to UK tax and you will get a tax credit for the US tax that you have to pay on those UK assets.