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HMRC internal manual

Employment Related Securities Manual

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HM Revenue & Customs
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International from 6 April 2015: PAYE and NICs - from 6 April 2015: example 1

Edith is a Hong Kong citizen who has been assigned to the UK for 2 years from 1 May 2013 and is awarded an option over shares in her UK-employer company on 1 June 2014, in year 2 of her stay in the UK. Edith leaves the UK and returns to Hong Kong on 30 April 2015, where she continues to work for the same group. Her option vests on 30 November 2015 but she does not exercise it until 30 May 2016. For 2016/17 Edith is not UK resident and remains back home in Hong Kong. She claims the remittance basis in 2013/14, 2014/15 and the UK part of 2015/16. (See ERSM20310)

Chapter 5 of Part 7 applies in respect of the option granted to Edith. As Edith pays £10,000 to acquire shares worth £20,000 the Chapter 5 specific employment income will be £10,000. She meets the requirement of ITEPA03/S26A in 2014/15 and 2015/16, which years fall within the relevant period from grant of the option (1 June 2014) to the date of vesting (30 November 2015) and she meets the international mobility conditions (ERSM162400) in both of those years, so ITEPA03/S41F will apply. While she is UK resident her employer requires her to spend 25% of her working time carrying out duties in Brussels. The rest of her duties are performed in the UK. During the time that she is not resident in the UK, all of her of duties are performed overseas. Her employer is fully aware of her residence status, her remittance basis claim and the balance of her workdays over the entire period.

The effect of Chapter 5B of Part 2 of ITEPA 2003 is to produce taxable specific income under subsection (3) of ITEPA03/S41F in the sum of £4,570 (that is £10,000 x 75% x 334/548) for 2016/17. (See ERSM162670 for examples of how to calculate chargeable and unchargeable foreign securities income). The employer has sufficient information to calculate this amount and should operate PAYE on it. (See ERSM162820)

As the shares that Edith acquires are UK assets, the chargeable foreign securities income arising from them is considered to have been remitted to the UK at the time of the chargeable event and is taxable specific income under subsection (6) of ITEPA03/S41F in the sum of £1,524 for 2016/17 (see ERSM162900).

The remainder of the option gain - £3906 (that is £10,000 x 214/548) is unchargeable foreign securities income.