RSU Double Taxation After Moving Abroad

Introduction

Restricted Stock Units (RSUs) are a common form of employee compensation, but they can present significant tax challenges, especially for employees who move to another country. If you hold RSUs and relocate during or after the vesting period, you may face double taxation, as both the granting and new resident countries might claim tax on your shares. This article explores the issues you might encounter and practical strategies to address them.

Understanding RSU Taxation

RSU Tax Basics

1. Grant: RSUs are not taxed at the time of grant.
2. Vesting: At vesting, the market value of the shares is considered taxable income, often subject to withholding by your employer.
3. Sale: Upon selling vested shares, any difference between the sale price and the vesting date’s fair market value is subject to capital gains tax.

Tax Implications After Moving

When you relocate, the country you move from might claim tax on RSUs that were granted while you lived elsewhere. Depending on the timing of your move and the vesting schedule, you could owe taxes in both the granting country and your new home.

Common Issues Faced by RSU Holders

1. Double Taxation

Double taxation can occur when both countries tax the same RSU income. For example:

• Country A taxes RSUs as income at vesting.
• Country B taxes RSUs upon sale, including the vesting income already taxed in Country A.
• Country A and B might charge tax on RSU as income which were granted before you moved and vested in your new home country.

2. Complex Cost Basis Reporting

Brokerages sometimes fail to report the correct cost basis, leading to higher tax liabilities or not aligned to the tax rules of your country. For example, a common problem faced by people who receive US stocks while living in the UK, is that the brokerage accounts do not use UK rules for cost basis. The cost basis should reflect the fair market value at vesting, but it may be reported as zero or an incorrect value, triggering unnecessary capital gains tax or confusion as to how to calculate capital gains.

3. Tax Treaty Challenges

While tax treaties aim to mitigate double taxation, navigating them can be complex. Treaty benefits are often subject to detailed residency tests and require proactive compliance.

How to Address Cross border RSU Tax Issues

1. Understand Tax Residency

Determine your tax residency in both countries, as this influences the taxation of RSUs. Residency laws differ between jurisdictions, so consult local tax rules or a professional.

2. Leverage Tax Treaties

Check if a tax treaty exists between the countries involved. These treaties often allow for tax credits or exemptions to reduce double taxation.

3. Adjust Cost Basis

Ensure your cost basis is correctly reported on your tax return:

• Review your employer’s vesting records.
• Adjust the cost basis on forms like the UK’s self-assessment or US Form 8949.
• If you live in the UK then most brokers will automatically file your US 1040 return.

4. Plan RSU Sales Strategically

If possible, time the sale of your shares to align with tax rules in your resident country, potentially reducing capital gains tax.

5. Seek Professional Advice

Work with tax advisors to ensure compliance and optimise your tax position. They can help with treaty applications, tax return adjustments, and long-term financial planning.

FAQs

Q: Can RSUs be taxed in two countries simultaneously?
Yes, if you relocate, both the granting and resident countries may tax RSU income. Mitigating this often requires applying for tax treaty benefits or claiming foreign tax credits.

Q: How can I avoid double taxation on RSUs?
Double taxation can be avoided by adjusting the cost basis, leveraging tax treaties, and claiming foreign tax credits in your new country of residence.

Q: What if my RSUs vest after I move?
The taxation depends on your RSU plan and the tax laws of both countries. Some countries tax RSUs based on the time spent in each jurisdiction during the vesting period.

Final Thoughts

Managing RSU taxes after relocation can be complex but not insurmountable. By understanding the rules, utilising tax treaties, and seeking expert advice, you can mitigate double taxation and ensure compliance. For tailored guidance, consult with tax professionals who specialise in cross-border taxation.

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