Share Incentive Plan - overseas employees

Contents

Q. Can overseas employees participate?

A. Provided the plan is open to all employees who meet the tests of:

  • Section 15 or 21 ITEPA 2003 employment.
  • Material interest; and
  • Not taking part in other schemes (see the guidance on this issue for more information).

the plan may also include other employees, provided they meet any further requirements set by the company. This would allow companies to include overseas employees. The facility to purchase partnership shares in the Share Incentive Plan has been extended in Finance Act 2001 to employees who have salaries that are not within the scope of UK taxation under ITEPA 2003. These employees are also eligible for matching shares. They can participate in the partnership share element of the employing company's share plan but cannot gain the UK tax benefits for doing so. There is already a provision for these employees to be awarded free shares within the plan'.

Q. What happens to my plan shares if I go to work outside the UK?

A. If you already take part in your employer's SIP, and you go abroad to work for your current employer, you will not lose the income tax relief and capital gains tax benefits on plan shares you have already received.

If you go to work overseas for a new employer, the same rules apply as if you had changed employer but stayed in the UK. If your new employer is a member of the same group as the company that awarded the shares, your tax position is not affected, and the new employment is counted as a continuation of the old for the purposes of the plan. This applies even if the new employer is not itself a company participating in the plan. So if you are an employee of a UK company operating an SIP and you are seconded overseas to work for a company in the same group you will retain all the tax benefits of the shares in the plan.

Q. Is my employer required to let me take part in the plan if I am not a UK taxpayer?

A. No, your employer is only required to invite UK resident employees who pay UK income tax on their earnings into the plan.

But your employer can choose whether to invite you to participate in the plan if you do not pay UK income tax on your employment income.

Q. Can my employer award me free shares if I am not a UK taxpayer?

A. Yes. If your employer decides to allow you to participate in the plan when you are not a UK taxpaying employee then you can be awarded free shares. The award has to be on the same terms as for other employees. As a non-UK taxpayer you would not gain any UK tax relief on this award and you may, in fact, have tax, social security contributions and NIC to pay in your host country. You should ask the tax authorities in your host country about this. You may however gain some relief from NICs if you continue to pay UK NICs whilst overseas.

Q. Can I buy partnership shares if I am not a UK taxpayer?

A. Yes. A change has been introduced in Finance Act 2001 to allow this. It is optional, so your employer does not have to extend the SIP to you in this way. It allows employees working outside the UK in circumstances when they are not UK taxpayers to buy partnership shares in their employer's plan (and to be awarded any matching shares that go with them).

Of course, you would not be entitled to any UK income tax relief on the deductions made from your pay. Neither would you receive any NICs relief unless you remained liable to pay UK NICs. Also, if you buy partnership shares at less than the market value, there may be tax and social security contributions (if you are not continuing to pay UK NICs) to pay in the host country. You should ask the tax authorities in your host country about this.

Q. Will I pay UK income tax on shares awarded to me if I am not a UK taxpayer at the time of the award?

A. No, but you may remain liable for UK NICs during a period of secondment, for example under a reciprocal agreement with your host country. If this is the case, you would be able to buy the partnership shares free of UK NICs.

Q. What happens when my shares come out of the Plan if they were awarded when I was not a UK taxpayer?

A. You are not charged to UK tax or NICs on early withdrawal of the shares from the plan if you were not chargeable to UK income tax in respect of the employment at the time the shares were awarded to you.

Q. What happens about capital gains tax (CGT)?

A. The growth in value of the shares while they are in the plan is not chargeable to CGT. If you take them out and sell them later, you may be liable to CGT on any increase in value between the market value of the shares when they came out of the plan and the sale proceeds. Generally if you were resident in the UK before you went to work abroad, were awarded shares while you were abroad, take them out of the plan and sell them later after you return to the UK, you may be liable to CGT on any increase in the value of the shares after they come out of the plan. Taper relief may reduce the amount of gain chargeable to CGT according to the number of whole years you hold the shares after they came out of the plan. Each individual can make gains up to a certain amount each tax year without having to pay CGT. This is called the annual exempt amount and for 2007/08 it is £9,200.

For more about CGT see our leaflet CGT1: Capital Gains Tax An Introduction (PDF 1.1MB).