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HMRC internal manual

Employment Related Securities Manual

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Ascertaining Foreign Securities Income (FSI) - up to 5 April 2015: examples: example 5 - non-resident year

Agnetha is employed by a Swedish bank in London. In the tax years 2008/9 and 2010/11 she devotes 75% and 60% respectively of her total working time to this employment. She has a separate employment with an affiliate of the bank which requires her to spend the remainder of her working time at that bank’s offices in Stockholm and in the intervening year, 2009/10 Agnetha works full-time for the Stockholm employer in Sweden and is not resident in the UK. The two employers are associated, applying the rules in ITEPA03/S24(5) & (6). She does work of comparable value in both employments.

On 6/4/08 she is granted a share option by her Stockholm employer. She exercises the option when it vests on 5/4/11 realising a gain of £3,000, which counts as employment income for 2010/11 under Chapter 5 of Part 7 of ITEPA 2003.

Agnetha is R/OR but not domiciled in the UK in 2008/09 and 2010/11 and claims the remittance basis of taxation under ITA07/S809B for those years. In 2009/10 she is not UK-resident.

As a result, for 2009/10 she cannot satisfy the condition in ITEPA03/S41C(4), as sections 809B, D & E ITA 2007 can only apply for a year where the individual is UK resident in that year. However, ITEPA/S41C(7) deems section 809B to apply for the purposes of section 41C, and since the other conditions in section 41C(4) are met this means that the remittance basis can still apply to her securities income for that year.

Her total option gain of £3,000 will be taxed as follows

  UK arising basis FSI
     
2008/9 750 250
2009/10 NIL 1,000
2010/11 600 400
Totals £1,350 £1,650

The intention of s41C(7) is to allow access to the remittance basis in respect of gains from employment-related securities ERS from an employment for years of non-residence in the UK that fall within a relevant period on the same terms as it is actually available for the year(s) within the relevant period in which the employee is actually eligible for the remittance basis by being UK resident and not UK-domiciled or not ordinarily UK resident. In Agnetha’s case, s41C(7) is intended to treat her year of non-residence as if it were a year to which section 41C(4) applies.

It is not the intention of the legislation to extend the remittance basis in respect of the amount of any gain from ERS relating to non-resident years to employees who are, say, ordinarily resident and not domiciled in the UK but for whom the remittance basis is not available because there is no foreign employer. If it is claimed in any particular case that s41C(7) has the effect of allowing this, the just and reasonable adjustment allowed by s41E will prevent it, so that those for whom the remittance basis does not apply for a particular employment at any time during the relevant period when they are UK-resident will not benefit from s41C(7) for that same employment in a year of non-residence.

For the application of this and the other examples to periods from 6 April 2013, see ERSM160873.