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The previously announced changes to the residence and domicile rules in
relation to employment related securities have been confirmed and remove the
former distinction that existed between individuals who were resident and
ordinarily resident (“ROR”) and those who were resident but not ordinarily
resident (“RNOR”). These changes will have effect in respect of awards made
on or after 6 April 2008.
In summary, the key changes are follows:
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RNOR employees will no longer be subject to income
tax on acquisition of a restricted share award (provided that any
forfeiture restrictions do not extend beyond 5 years). As for ROR
employees, income tax on such awards will now typically arise at
vesting.
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RNOR employees who are granted options while in the
UK will no longer be subject to the notional loan rules when calculating
share option gains (and will be taxed in the same way as ROR employees).
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RNOR employees who are granted options while in the
UK and exercise these options after leaving the UK will now become
subject to UK income tax on any gain.
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RNOR employees and ROR employees who are
non-domiciled and who receive awards and are taxed on the remittance
basis will be subject to income tax on the proportion of their non-UK
employment related securities income only when this is remitted to UK.
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It appears that employers who operate all-employee
share plans (e.g. SAYE schemes and SIPs) will now have to invite all ROR
and RNOR employees to participate (previously this obligation only
applied to ROR employees).
Our view
These changes bring RNOR employees into the same position as ROR
employees meaning that employers no longer need to treat these employees
differently. Previously, employers with RNOR employees could be caught
out in terms of tax compliance by the difference in the treatment of
these employees compared with ROR employees. This problem will no longer
arise for awards made after 6 April 2008. However, employers will now
have to track the movements of their RNOR employees who leave the UK
after the date of grant of an award which will result in a separate
compliance burden.
Listed companies in the UK will not be able to benefit from the
remittance basis in relation to shares awarded to employees who would
otherwise be taxed on this basis (as the shares will be treated as UK
assets in these circumstances). |
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