A US National but UK resident person has been granted Restricted Stock Units (RSUs) by his American employer. These vest on a quarterly basis after the first anniversary of the grant date. He has just been asked to complete an UK tax return for 2013/14 (deadline 8 May 2015). During 2013/14 there were three lots of quarterly RSU vesting. Each of these had US Withholding Tax of 50.28% (Federal) deducted in the US. In addition he has had 50% UK tax deducted at source via PAYE on each vestment (he is a higher tax payer). My query is twofold:
1. Is he entitled to claim back tax under the double tax treaty between the two countries?
And if so,
2. Which country does he make the claim in? Is it the USA as this is the country that the RSU grant originates in (he currently has to file US tax returns as well as UK tax returns)? Or does he put a claim in via his self assessment tax return in this country?
Hopefully I have given enough information for some informed replies but please do say if I have omitted some crucial information.
Many thanks.
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Replies (3)
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If the client is really paying 50.28% plus 50% UK tax he would be very poor indeed.
It likely that the employer is withholding UK tax, UK employer and employee NIC, but this is showing up on payroll as Federal tax because the employers US payroll does not have boxes for foreign tax & NIC.
The client is a US citizen so is subject to US tax but can claim credit for foreign tax on foreign sourced employment income. The UK probably has the primary taxing rights, but you'd need to see how the RSUs were sourced on the 2013 US income tax return and amend this if it turns out to be necessary.
Sorry I probably was not very clear in my OP. The client is employed by the UK subsidiary of the American company and has been in the UK working for the last few years and has indefinite leave to remain here and is actively seeking British citizenship. He is definitely UK resident and probably UK domiciled by choice.
He is subject to PAYE in this country and his vested RSUs have been included in his UK payslips and taxed accordingly and reported on his P60 (I have seen all payslips and P60 showing that this is the case).
He has also suffered 50.28% federal tax on these vestments in the USA - once again I have seen the appropriate documentation detailing this. Thus he has suffered tax twice at virtually the same rate.
I believe that he is entitled to claim foreign tax credit relief in his UK tax return - it is just a matter of how to report it as I do not want to include the gross income on the Foreign Income pages as it will be double counted as it is already in his Schedule E earnings. My software (Digita) doesn't seem to let me put in a tax amount that is greater than the gross income amount.
I am unclear on what basis the UK would give credit for US withholding tax on UK source employment income. Any refund should be claimed on the US return. How has the income on the vesting of the RSUs been sourced for US tax purposes on the US income tax returns, versus simply for withholding purposes?