RDRM31130 - Remittance Basis: Introduction to the Remittance Basis: Foreign Income and Gains: Employment - Related Securities - specific employment income

Note: This section provides an overview of the position after 6 April 2015 only; please see the Employment Related Securities Manual (ERSM) for full details about the taxation of employment related securities.

As ERSM161120 explains, where employment-related shares are acquired as shares in a UK company, the shares are UK assets and therefore they are ‘used in the United Kingdom by and for the benefit of the employee’.

Where those shares, share options and such, or any cash derived from them, is either the foreign securities income, or derives (whether wholly or in part, directly or indirectly) from the foreign securities income, the shares are wholly remitted to the UK when acquired, because the shares are UK assets. Thus there will be an immediate UK tax charge on this ‘remittance’ of foreign employment income.

If the UK shares are later sold, the sale proceeds consist or derive from the shares which are property that is regarded as consisting of or deriving from employment income, so the proceeds themselves consist of/contain that employment income, up to the amount of the original income. Refer to RDRM35290 Remittances from mixed funds - example 2 - sales proceeds.

There may also be a capital gain on the sale; this will be a UK gain rather than a foreign chargeable gain because the shares are UK-situs assets.

If the sale proceeds are sent offshore and later brought back to the UK there will be no further charge on these monies, to the extent that they have already been subject to tax in the UK.

Foreign specific employment income

Foreign specific employment income (FSI) is any part of an individual’s employment income of a tax year that is foreign securities income (ITA07/s809Z7(4A)).

Foreign securities income is the amount of employment-related securities income that is foreign.

From 6 April 2015, if an amount counts as employment income under Chapters 2 to 5 of Part 7 (‘securities income’) of an internationally mobile employee, Chapter 5B of Part 2 of ITEPA 2003 determines the amount of the securities income that is taxable in the UK. (Refer to ERSM162100 onwards).

These new rules apply to employment-related securities options and employment-related securities from 6 April 2015, no matter when they were acquired.

Internationally mobile conditions:

  • any part of the period is within a tax year for which the remittance basis applies to the individual
  • any part of the period is within a tax year for which the individual is not UK resident
  • any part of the period is within the overseas part of a tax year that is a split year for the individual

Broadly, the rules in ITEPA03 provide that, instead of the whole amount which counts as employment income being taxable in the UK on the arising basis, only that part which relates to the UK is taxable as it arises.

It achieves this by use of a formula:

taxable specific income = SI - FSI

where

SI is the amount of the securities income, and

FSI is the amount of the securities income that is ‘foreign’.

Full details od the scheme for both pre and post 6 April 2015 are available in the Employment-Related Securities Manual (ERSM) from ERSM160000 onwards.

See RDRM31125 for more information about Employment Income provided through third parties (sometimes referred to as ‘disguised remuneration’).