Stock options have become a popular form of compensation for many companies, especially in the tech sector.
Among the various types of stock options, Restricted Stock Units (RSUs) are particularly popular.
But what happens when an individual who has been granted RSUs leaves the UK? Do they still have to pay tax on these RSUs?
What are RSUs?
RSUs are a type of equity compensation given to employees by their employers. Unlike traditional stock options, which give employees the right to purchase company stock at a predetermined price, RSUs provide employees with actual shares of the company stock once certain conditions are met, typically after a vesting period.
Taxation of RSUs in the UK
In the UK, the taxation of RSUs is relatively straightforward for residents. When RSUs vest, they are typically considered taxable income.
The amount of income is usually the market value of the shares at the time of vesting.
This income is subject to both Income Tax and National Insurance contributions (NICs).
What happens to RSUs when you leave the UK?
The taxation of RSUs becomes more complex when an individual leaves the UK.
If your RSUs vest while you are still a UK resident, you will be liable to pay UK tax on the entire value of the RSUs, just as any other resident would.
Things get trickier if your RSUs vest after you’ve left the UK. In such cases, the UK tax liability is typically calculated based on the number of days you were a UK resident during the vesting period.
For example, if you were a UK resident for half of the vesting period and then moved abroad, you might only be liable for UK tax on half of the RSU value.
The UK has double taxation agreements with many countries. If you move to one of these countries, these agreements can help ensure that you aren’t taxed twice on the same income.
If you sell your shares after leaving the UK, you may be subject to Capital Gains Tax (CGT) in the UK, especially if you were a UK resident when the RSUs were granted. However, the specifics can vary based on various factors, including the length of time you’ve been out of the UK.
There are various factors at play when it comes to the taxation of RSUs for individuals leaving the UK.
If you find yourself in such a situation, please contact the expert team at SMCO, who can provide guidance tailored to your specific circumstances.
