Knowledge Hub
for Growth


Share remuneration for US national employees working in the UK  

The number of skilled US nationals working in the UK rose by 11% last year (according to research published on the Gov website): further evidence, if evidence is needed, of an increasingly globalised marketplace and the attractiveness of the UK as a location for global talent.  

If you are a UK business with US operations and/or engaging US nationals, or a US headquartered business with UK operations, how you best incentivise US nationals living and working in the UK, will be a key consideration for you. 

Our employee share schemes team discuss some of the relevant considerations and explain why it pays to plan ahead.  

Structuring incentive arrangements  

As with any incentive arrangement for your workforce, the primary question will be how to set the commercial terms of the incentive arrangement to align your workforce with the company’s and the shareholders’ goals.  

It will then be important to determine how to best structure the incentive to realise these goals, taking into account the legal and tax implications of the arrangement. 

Double taxation considerations 

When considering how to structure incentive arrangements for US nationals, a key issue will be the tax consequences of the arrangement. This is particularly an issue for US taxpayers as the US taxes its citizens (or greencard holders) on their worldwide income regardless of whether they are resident in the US.  This means that the US can tax income relating to non-US work. The UK taxes employment income based on residence and UK duties.  

Therefore, it is a common scenario that US taxpayers working in the UK may be subject to double taxation on their employment/wages income and the tax treaty between the UK and US provides tax relief in this scenario.   

Relevance of UK/US tax favoured share incentives 

As well as the complexity of navigating double taxation in the UK and US, the usual suite of UK tax-favoured share incentives for UK companies or US tax-favoured share incentives for US companies will need to be flexed for cross-border employees.  

There are approaches to navigate these issues which we can help you with and which might include consideration of the following structures, at a high level:

Restricted shares

Where the market value of the shares is low at the time of award, the company may make an outright award of restricted shares/restricted stock accompanied by entry into the relevant tax elections for UK tax (s.431 election) and for US tax (s.83b election) to enable the growth in value of the share from the time of award to be taxed at more favourable US and UK rates on (long-term) gains rather than as employment income. This does require a tax valuation which is supportable for both UK and US tax purposes and typically US tax valuations of employee equity can be higher than in the UK due to lower discounts for lack of control and marketability.  

Growth shares

The grant of a share award which benefits from future economic value creation only (a UK “growth share”) rather than present value. It may be possible to structure an award as a profits interest for US tax purposes and whilst this approach would still require a UK tax valuation for UK income tax purposes at the time of award, this may enable the economic benefits of the award to be taxed as a UK capital gain (US long term gain) in both jurisdictions with careful planning and structuring. 

Enterprise management incentives

The implementation of an enterprise management incentive option for UK purposes which also qualifies as an incentive stock option for US tax purposes, planning for and understanding the complexity of navigating two sets of qualifying criteria set by the US IRS and UK HMRC. 

These types of approaches can involve navigating a number of complex issues but for key executives who are driving value creation, they will be important considerations.  

Phantom awards/non-qualifying share options

Where tax efficiency is less important and simplicity is key, an instrument which is taxed as employment income in both jurisdictions for example a phantom award or a non-qualifying share option may be implemented and in this case the key tax issue for the individual will be alleviating double taxation through their personal tax return. Social security/national insurance contributions considerations will also be relevant in this scenario and whether and how the position can be optimised for these purposes. 

Maximising your cross-border opportunities 

Buying into the opportunities skilled US nationals can add to your workforce raises its own challenges, but it can also make all the difference to a successful cross border strategy.  

Our skilled team of employee share scheme solicitors can help you manage these challenges and make the most of emerging opportunities. Contact us on 0800 689 1700 or fill out the short enquiry form below and a member of our team will be in contact.


What next?

Please leave us your details and we’ll contact you to discuss your situation and legal requirements. There’s no charge for your initial consultation, and no-obligation to instruct us. We aim to respond to all messages received within 24 hours.

Your data will only be used by Harper James Solicitors. We will never sell your data and promise to keep it secure. You can find further information in our Privacy Policy.


Our offices

A national law firm

A national law firm

Our commercial lawyers are based in or close to major cities across the UK, providing expert legal advice to clients both locally and nationally.

We mainly work remotely, so we can work with you wherever you are. But we can arrange face-to-face meeting at our offices or a location of your choosing.

Floor 5, Cavendish House, 39-41 Waterloo Street, Birmingham, B2 5PP
Stirling House, Cambridge Innovation Park, Denny End Road, Waterbeach, Cambridge, CB25 9QE
13th Floor, Piccadilly Plaza, Manchester, M1 4BT
10 Fitzroy Square, London, W1T 5HP
Harwell Innovation Centre, 173 Curie Avenue, Harwell, Oxfordshire, OX11 0QG
1st Floor, Dearing House, 1 Young St, Sheffield, S1 4UP
A national law firm

Like what you’re reading?

Get new articles delivered to your inbox

Join 8,153 entrepreneurs reading our latest news, guides and insights.

Subscribe


To access legal support from just £145 per hour arrange your no-obligation initial consultation to discuss your business requirements.

Make an enquiry