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HMRC internal manual

Employment Related Securities Manual

Interaction of UK law and treaties - from 6 April 2015: chapter 5B and time apportionment - example 3

Nadine is UK-resident but not ordinarily resident (ERSM162645) and not domiciled in the UK when an option is granted, on 1 June 2012, and is on the remittance basis in 2012/13. She remains resident but not domiciled in the UK and meets the requirement of ITEPA03/S26A (ERSM162615) in 2013/14 and 2014/15. The option vests on 31 May 2014 and is exercised 31 May 2015, producing specific employment income of £10,000. The relevant period is from 1 June 2012 to 31 May 2014.

Nadine has performed 25% of her duties in France every month during the relevant period. She is still resident, and is treaty resident, in the UK when she exercises her option.

So, ITEPA03/S41F(3) will produce the following result:

Total securities income 10,000
   
The amount of the securities income relating to Nadine’s duties performed outside the UK 2,500
Taxable specific income under S41F(3) 7,500

The £2,500 is chargeable foreign securities income by virtue of ITEPA03/S41H6). If none of the chargeable foreign securities income is remitted to the UK, then it will not be subject to UK income tax.

Under the UK/France Double Taxation Treaty, France is entitled to tax the French workday proportion of the gain - this will be based on the workdays between grant and vest in accordance with OECD guidelines.

France taxes gain 120/480 x 10,000 2,500
   

Foreign Tax Credit Relief is available for the French tax on doubly taxed income. The UK has not subjected to tax £2,500 in respect of French duties but will do so if the chargeable foreign securities income is remitted to the UK. In that case, Nadine would be entitled to FTCR in respect of the French tax on the gain of £2,500.