From 6 April 2015, the tax rules on share options granted to internationally mobile employees resident in the UK will change. The tax treatment on share options will depend on where the employee’s duties are performed during the ‘relevant period’ (typically between grant and vesting of the options). The amount chargeable to UK income tax will be based on the proportion of time spent working in the UK.
This is a fundamental change from the current rules which put weight on the residency status of the employee at the date the options are granted. So options granted when an employee was not UK resident could often remain outside the scope of UK taxation, even if the employee subsequently became UK resident.
The change is likely to affect international companies that have sent senior executives to develop their UK business and have included share options as part of the benefits package.
As a minimum, employees and employers should keep records of their time spent in the UK so that they can accurately determine the UK tax consequences.
Employees who were granted options before coming to the UK should seek professional advice as they may wish to take action before the new rules come into effect on 6 April.