Foreign Shares? Reinvestment Dividends? Prepare for HMRC asking questions…

Many international Energy companies encourage employees to participate in their company share award arrangements, allowing them to receive shares as part of their remuneration package. This can be financially very attractive, also allowing for savings when the awards include tax exempt HMRC approved share schemes.

It’s worth mentioning that some unapproved schemes can be complex from a tax perspective, and the acquisition of shares must be carefully checked to ensure correct reporting of any UK tax liability both by the employer (to avoid PAYE failure) but also by the employee, who ultimately remains responsible for ensuring their tax affairs are correct.

It is common for these shares to be registered overseas, for example shares awarded via Total, Conoco, Apache, and CNR, which are subsequently held and managed in an overseas portfolio account, often referred to as a ‘Vested’ share account, but just because this account sits ‘Overseas’, does not mean it is exempt from UK Income or Capital Gains Tax.

As a general rule, UK resident employees, are taxable on their Worldwide Income and therefore need to be aware of the reporting obligations associated with any Dividends issued from these shares. It is also important to note that Dividends used to acquire new shares, rather than being paid in cash, still remain subject to UK Income Tax.

UK resident employees are also liable to Capital Gains Tax on worldwide assets, and so gains made on sales of these same shares need to be carefully managed and reported to HMRC.

The Common Reporting Standard (CRS) has allowed for the automatic exchange of global tax and financial information since 2016, and so HMRC will now have line of sight to shares held overseas by UK tax residents. If dividends or sales of these shares haven’t been reported correctly in UK Tax Returns, now is the time to consider full disclosure to HMRC, and certainly before 30 September 2018 to avoid the severe ‘Failure to Correct’ penalty.

Our experience has shown that many individuals simply don’t appreciate the reporting requirements associated with share awards generally, genuinely believing there is nothing to report, when in fact there could be many years of accumulated dividend income/sales which should have been included in UK tax Returns.

We can provide a ‘Tax Health Check’ – providing certainty where there is any doubt. For more information on this matter, please do not hesitate to contact us.

Find out more about our Private Client Tax team.