RSUs across the Atlantic: when each country takes its share

It is a promise by your employer to deliver shares in the future, once you meet conditions. The usual condition is staying employed until a vesting date. Until then, you own nothing you can sell.

Because nothing transfers at grant, neither country taxes the award at that point. The taxable moment comes later, when the shares actually arrive.

That gap between grant and delivery is exactly where cross-border problems start. Your working life can move across the Atlantic long before the shares land.

Generally when your employer delivers the shares, which usually happens at vesting. The value of the shares on that date counts as wages. It appears on your Form W-2 and carries income tax and payroll tax withholding.

Any later growth is a separate matter. When you sell, the difference between the sale price and the vesting value is a capital gain or loss.

The IRS guide to taxable income covers restricted property generally. For a US citizen, the whole vest is taxable wherever the work took place.

Also at delivery, as employment income. Where the shares are readily convertible into cash, as listed shares usually are, the employer normally collects the tax through payroll. National Insurance generally applies as well.

The value on delivery becomes your base cost for capital gains. So a later sale only brings tax on the growth after vesting.

The GOV.UK guide to employee share schemes explains the tax and reporting for shares outside the approved schemes.

By where you worked while you earned it. HMRC treats a restricted security as earned over the period between the award and the lifting of the restriction. It then divides the income by your workdays in each country across that period.

So if you spent half the vesting period working in New York and half in London, roughly half the vest relates to UK work. The date the shares arrive does not decide the split.

HMRC sets out the approach in its guidance on time apportionment under double tax treaties. Treaties can adjust the period in particular cases, so check the facts.

The US taxes citizens on worldwide income, so the whole vest stays taxable in America. However, the part earned while working in the UK is foreign earned income for American purposes.

That foreign part can support a foreign tax credit for the UK tax paid on it. Where UK tax rates are higher, the credit usually removes the US tax on that slice.

The US part works differently. Britain does not usually tax that slice if you were not UK resident while earning it, so it simply carries American tax. Our guide to avoiding double taxation explains how the credits fit together.

Then the US only taxes the part connected with work performed in America. A British employee who spent part of the vesting period on a US assignment can owe US tax on that slice alone.

The rest, earned while working in Britain, generally falls outside the US system. The IRS guidance on personal service income confirms that the place of work decides the source.

Employers do not always get this right. Payroll may withhold US tax on the whole vest, and recovering it means filing a US return.

The UK can still tax the part earned while you worked in Britain. Leaving before the shares arrive does not remove HMRC's claim to the slice linked to your UK workdays.

That catches people who move back to America expecting a clean break. The British slice may need reporting after departure, sometimes through a return for a year in which they no longer lived here.

The American side then gives a foreign tax credit for that British tax, subject to the usual limits. So the diary matters just as much on the way out as on the way in.

Payroll systems see a vesting date and a location on that date. They rarely track where you worked over the previous three or four years.

So the new country often taxes the whole of a vest that lands after a move. The old country may also withhold its share, which produces tax in both places on the same slice.

In our practice we see this after almost every transatlantic move. It is fixable on the returns, but only with a record of where the work actually happened.

Tell both payroll teams about the move in writing, with dates. That will not fix every vest, but it gives you evidence that the withholding error was not yours.

Usually one or the other, not both. The social security agreement between the two countries decides which system covers your earnings, and RSU income follows that answer in most cases.

An employee temporarily sent from one country to the other can often stay in the home system with a certificate of coverage. Our guide to the totalization agreement explains how that works.

Without the certificate, both payrolls may deduct contributions. Recovering them later is slow, so ask for the certificate before the move.

Selling brings a separate capital gains calculation in each country, and the two calculations start from slightly different places because each uses its own currency and its own tax year. Each uses the value at vesting as the starting cost, converted into its own currency.

Currency movement means the two gains rarely match. A sale that shows a small gain in dollars can show a larger one in pounds, or the reverse.

Our guide to capital gains tax on shares covers the British side of a sale in detail.

It changes which country taxes which slice, and sometimes the total. Moving shortly before a large vest shifts less of it to the new country than people expect, because the earning period stretches back years.

The tax years matter too. A vest in March and one in May can fall into different UK tax years, which affects rates, allowances and the return each one appears on.

None of this is a reason to delay a career move. But it is a reason to model the next two or three vests before you set a date.

They can change the earning period, which then changes the split. Some restricted stock units vest only if the company hits targets, and the award may not be certain until the end of a measurement period.

The workday apportionment still follows the period over which you earned the award. Where performance and service conditions overlap, the plan rules decide what that period is.

Read the award agreement rather than the summary email. Restricted stock units with unusual conditions are exactly where a short review saves an expensive correction later.

Most of this work is record keeping, and the records are far easier to build as you go.

Start the diary on the day you accept the award, not on the day you move.

Take an illustrative example: an American software engineer receives an RSU award in Seattle. Two years into a four-year vesting schedule, she transfers to her employer's London office.

When the next tranche vests, she had spent roughly half of the vesting period working in the US. HMRC generally taxes the other half as UK employment income, and her US return includes the whole vest.

She claims a foreign tax credit for the UK tax on the London slice. Her workday diary, kept from the start, makes both calculations quick to support.

Many employers sell or withhold some shares at vesting to cover the tax. That does not reduce the taxable amount, because the full value of the vest is still income.

The withheld shares simply pay the tax on your behalf. Your statement should show both the gross vest and the shares retained.

Record the gross figure on both returns. Reporting only the net shares received is one of the most common understatements on equity income.

The first is assuming the vesting-date location decides everything. The split follows where you worked over the whole period.

The second is keeping no workday records. Without them, the apportionment turns into an argument you cannot win.

The third is trusting payroll withholding as the final answer. With restricted stock units after a move, payroll is a starting estimate rather than the correct tax.

We apportion equity income across both returns through our treaty relief service, reconciling payroll figures with the workday split. Where you need credits, we claim them on the right return for the right year.

If you hold unvested awards and are moving, or have already moved, send us your grant statements and we will map both sides at a fixed fee agreed first. This article is general information, not personal tax advice; take advice on your own facts from a qualified adviser.