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HMRC internal manual

Employment Related Securities Manual

Ascertaining Foreign Securities Income (FSI) - up to 5 April 2015: examples: example 6 - relevant periods including years where remittance basis does not apply

In 2009/10 Rosa is resident but not ordinarily resident in the UK. She is not domiciled in the UK. She works for the UK subsidiary of a US group but spends some of her time working overseas. She earns £50,000 a year. She is awarded an option over shares in the parent company on 6/4/09 which vests on 5/4/12 and which she exercises on 5/4/13, realising a gain for the purposes of Chapter 5 of £300,000.

In 2010/11 and 2011/12 she is resident but not ordinarily resident, but in 2012/13 she becomes ordinarily resident in the UK. She claims the remittance basis of taxation under ITA07/S809B for the two years from 6 April 2009 to 5 April 2011 and for the year to 5 April 2013, but not for the intervening year ending 5 April 2012.

Her overseas workdays (out of a total of 240 workdays in each year) are:

2009/10 90
2010/11 60
2011/12 60
2012/13 40

ITEPA03/S41A applies because Rosa is R/NOR and claims the remittance basis for at least one of the tax years that is included in the relevant period (ITEPA03/S41A(1)(b)).

The relevant period begins with the day of the acquisition of the employment-related securities option - that is 6 April 2009 (ITEPA03/S41B(5)(a)) - and ends with the day the option vests - 5 April 2012 - which is earlier than the day of the chargeable event (when Rosa exercises her option.) (ITEPA03/S41B(5)(b))

All the conditions in ITEPA03/S41C(6) are met for 2009/10 and 2010/11. For 2011/12, although she is still R/NOR, Rosa has not claimed the remittance basis and therefore ITA07/S809B does not apply (and nor do S809D or S809E).

ITEPA03/S41C(2) says that an equal amount of the securities income is treated as accruing on each day of the relevant period. So £100,000 of the securities income is treated as accruing in each of the three years of the relevant period.

Per section 41C(5)(b), as Rosa has performed the duties of her employment partly in the UK and partly overseas during 2009/10 and 2010/11 the option gain treated as accruing for those years is apportioned on a just and reasonable basis.

As a result,

for 2009/10 £100,000 x 90/240 = 37,500 and

for 2010/11 £100,000 x 60/240 = 25,000, so

£62,500 of the Chapter 5 income of £300,000 is treated as FSI and will be taxed only if remitted to the UK and the remaining £237,500 is taxed in the UK as employment income for 2012/13.

Rosa is non-domiciled in the UK in 2012/13 so is entitled to claim the remittance basis, but not in respect of this employment, as it is not with a foreign employer with duties wholly outside the UK. So, if the relevant period had extended to 2012/13, there would have been no FSI in respect of that year.

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