Tax on ESOP (Employee Stock Option) foreign income

Hi HMRC Team, I am an employee of sister company in UK which has the parent company in India. I am tax resident in UK from 2013, but an Citizen of India. As part of performance bonus , I was provided with ESOP by my company (Not listed in UK, Listed in India stock exchange) . When I exercise the ESOP (Given to employee with discounted rate for example Rupees 5 per share) in India (To a Dmat/trading account which is non-repatriable in nature), my company show the entire amount (Fare market Value, not the discounted price on which I was allocated the share, times with the number of shares bought) as my UK Salary and deduct TAX on it. As my shares are in a non-repatriable and I am not bringing that money to UK, am I entitled for a refund on this income, which my company already deducted? Thanks

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Hi,

As a UK resident, you are taxable on your worldwide income.

An employee who acquires shares in connection with his or her employment either free, or in return for a payment that is less than the value of the shares at the time of acquisition, will be chargeable to tax under Part 2 or Part 7 ITEPA 2003.

If a tax charge arises on an award of shares, or when shares are acquired on exercise of an option over shares, Part 11 Chapter 4 ITEPA 2003 requires the employer to operate PAYE if the shares are readily convertible assets.

Employee share schemes are classified as tax advantaged or non-tax advantaged. The main difference is that employees do not usually pay Income Tax when they acquire shares under a tax advantaged scheme. You can see further guidance here:

Tax and Employee Share Schemes

Thank you

Dear HMRC team, as a recent funding round my businesses provided employees the option to exercise a portion of their vested esop and paid out the difference. However it’s a being categorised as income, can I claim this as a capital gain, and if so how do it do this? Thanks

Hi Dawei Wang,

As the payment is from your employer, the income should be shown in the employment section if it is included in your P60. It is not a capital gain.

Thank you.

Hello HRMC Team, I work for a subsidiary company domiciled in Kenya. Our parent company in the UK is considering setting ESOP in the UK. Subsidiary employees who are non UK residents will participate in ESOP . Will these non UK resident employees be liable for PAYE on the difference between the offer price and market price? If so, will be an exposure to double taxation?

Hi Ken Ronoh,
ESOP are taxed as income when they are exercised, they are treated as a perquisite or benefit someone enjoys on account of their job or position and are taxable as income.
If the individual is not resident in the UK, then they will not be taxed in the UK.
If the shares are sold in the market, they will be treated as a capital gain.
Whether that capital gain is taxable in the UK, would depend on the double taxation agreement between the UK and the country in question.
Thank you. 

Dear HRMC Team, I am a UK resident domiciled outside the UK, I am registered as a sole trader and I receive foreign income. My client, a Japanese kabushiki kaisha (joint-stock company) with no UK entity, considers paying me for the services in the form of stock options. The company is not listed on stock exchange. What are the tax implications in terms of a) options granting; b) exercise of the options; c) share sales? Thank you for your response in advance.

Hi Simon G

Please have a look at the guidance at BIM40051 and BIM70015 for cash basis or BIM40075 for GAAP.  
This means that the options would be liable to income tax based on the moneys worth value at the time of granting.  
The sale of the shares would be liable to CGT with the acquisition costs being the same moneys worth value at the time of granting.  
BIM40051 - Receipts: general: whether trading income
BIM70015 - Cash basis: receipts: overview
and BIM40075 - Receipts: general: when are they earned?.

Thank you

 

Hello HMRC Team, I am a UK citizen and UK resident working for a US company via an Employer of Record in the UK. I have NSO employee stock options issued by this US company. The strike price is very low, and the current fair market value is much lower than the company could end up being acquired for. I expect there to be an acquisition within 12 months. If I were to exercise my options now, and the company is acquired within 12 months, what tax would I be liable for? And would I also be liable for tax in the US? Many thanks

Hi coffee73 Hopkins

Employees have to pay income tax on the difference with the fair market share price and the exercise price (profit made).
After acquiring the options, the employee would have the freedom to either sell the shares or keep them.  Please see Tax and Employee Share Schemes.  
If you sell/dispose of the shares you would have to consider the Capital Gains Tax position -   HS287 Capital Gains Tax and employee share schemes (2024).  
We cannot comment on the US tax position.

Thank you

Dear HMRC Team I was granted ESOPs by my employer in 2018/2019 overseas prior to moving to UK. The ESOPs were vested prior to moving to UK. However, I exercised ESOPs in 2024 and paid tax as per overseas laws of that country. I moved to UK in 2022 and I am a UK tax resident now (on Global Mobility Visa). I want to remit this money to UK . Please clarify if I need to pay tax in UK on the difference between exercise price and grant price or difference between exercise price and sale price of such shares.

Hi Manroh Awal,
As you exercised them whilst UK resident, you need to report any of the gain that is remitted - Remittance basis 2024 (HS264).
Thank you.

Thanks HMRC Admin 21 for reply to my query. I understand by gains you mean to say capital gain which is difference between exercise price and sale price of such share. I will proceed accordingly.

Dear HMRC team My Company is an Indian IT company, with its stock listed on Indian stock market. It has given ESOP to me, exercised at face value. I am a UK tax resident but domiciled in India. If I file returns on remittance basis, and these shares remain in my India DMAT account, do I have to pay perquisite tax in UK (on difference between share price and face value) when I exercise these shares? Thank you.

Hi Explorelife,
Please refer to: Paying tax on the remittance basis (Self Assessment helpsheet HS264)
Thank you.

Dear HMRC team, thank you for your reply. It is still not clear to me if these shares will form part of my employment income in UK and I have to tax on them (on difference between share price and face value)? Or will these be considered as part of my India income and since I file returns on remittance basis, so I do not pay tax on them in UK, but pay tax in India on these. Request you to clarify.

Hi,
As you state the company is based in India, then this will be Indian income. If you do not remit the income, then you do not declare it if claiming remittance basis.
Thank you.