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HMRC internal manual

Employment Related Securities Manual

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HM Revenue & Customs
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Securities acquired for less than market value: employee resident but not ordinarily resident in UK: overseas workdays up to 5 April 2015 - examples

Residence: options granted pre-6 April 2008

In each of the three examples below the employee is resident but not ordinarily resident in the UK in Year 1, when the option is granted before 6 April 2008. The option vests at the end of Year 2 and is exercised at the end of Year 3. The gain of 10,000 relates to a 3 year period (a total of 720 workdays).

Example 1

Martha has 24 US workdays in each of years 1 and 2 and 120 US workdays in Year 3.

HMRC’s practice is to restrict UK’s charge under S446U to UK workdays based on the period between grant and vesting of the option.

Total Gain 10,000
   
Overseas workdays 48/480 x 10,000 1,000
  9,000

US is entitled to tax the US workday proportion of the gain - this will be based on the workdays between grant and exercise in accordance with the UK/USA double taxation treaty.

US tax gain 168/720 x 10,000 2,333
   

Foreign Tax Credit Relief is available for the US tax on doubly taxed income. UK has given relief in respect of 1,000 in respect of US workdays. So, Martha is entitled to FTCR in respect of the US tax on the gain of 1,333 (i.e. 2,333-1,000).

Example 2

Flora’s US workdays are 120 days in Years 1 and 2 and 60 days in Year 3.

UK will charge gain as follows:

Total Gain 10,000
   
Overseas workdays 240/480 x 10,000 5,000
  5,000

US is entitled to tax US workday proportion of gain.

US tax gain of 300/720 4,167
   

In this scenario, HMRC’s view is that relief on the gain has already been given in respect of US workdays, in the sum of 5000, so Flora can make no additional claim for FTCR.

Example 3

As Example 2 except that Kaela’s overseas workdays are split between US and other countries.

Year US days Other overseas
     
1 30 90
2 30 90
3 40 90

In practice, UK will charge gain of 5,000 as in Example 2.

US entitled to tax US workday proportion of gain

US tax gain 100*/720 x 10,000 1,389
   

*(30+30+40)

To determine if any FTCR is due we need to look at how much ‘relief’ UK has given in respect of US workdays.

This will be 60/480 x 10,000 1,250
   

So, UK give foreign tax credit relief for US tax on 139 (1,389 - 1,250).

It is irrelevant that the UK has already given relief of a greater amount by virtue of the concession. For the purpose of FTCR we are interested in doubly taxed income. The UK has not fully relieved the doubly taxed income derived from the US by virtue of the concession.

For guidance on the effect of residence on charges under Part 7 generally, including Chapter 3C, from 6 April 2015 onwards, see ERSM162000.