Taxed on non-matured shares

jace_da_face

Pardon my terminology if I am not getting this quite right, but I will attempt to explain the situation best I can. Basically, the wife has been awarded a few shares by her employers as a kind of bonus. These will not mature for three years, that is, she cannot sell or realise the value of these shares for three years. An incentive to stay with the company for that duration no doubt.

The current market value of the shares is somewhere in the region of €7,000- €8,000. Not bad eh. Anyway, what the company accountant is telling her sounds so odd and seems a little unfair. He has told her that she must pay all the tax on those shares (capital gains I presume??) in year 1, and that this amounts to €2,500. So she is paying tax on something she has not vested and will not for 3 more years.

I have only just discovered that the name of this type of share arrangement is RSUs (restricted stock units). Is anyone familiar with this and how the tax is calculated and why it is owed immediately on granting of the RSUs?

Calahonda52

its all here:
https://www.revenue.ie/en/additional-incomes/employment-related-shares/unapproved-share-schemes.aspx

Looks like the hit should have been 4,000 assuming she is on top rate, and the rsu reduces the liability.
The reason it is taxed is that it an asset she now owes for which she paid nothing, ao BIK in effect.
ps looks like to me ,am no expert

Marcusm

If the RSU scheme is constructed properly, the tax should only arise when the stock vests, ie when she is entitled to them.

jace_da_face

Marcusm wrote: »

If the RSU scheme is constructed properly, the tax should only arise when the stock vests, ie when she is entitled to them.

That’s what I was thinking. As in, 3 years down the line the tax is then owed, when the agreed period has elapsed. She did have to officially accept the shares. I’m not sure what was involved in that but she tells me she had to register some where. That hardly constitutes the stock vesting does it? Surely they vest in three years time.

relax carry on

jace_da_face wrote: »

That’s what I was thinking. As in, 3 years down the line the tax is then owed, when the agreed period has elapsed. She did have to officially accept the shares. I’m not sure what was involved in that but she tells me she had to register some where. That hardly constitutes the stock vesting does it? Surely they vest in three years time.

From Chapter 2 on Revenues Share Schemes Manual.

The income tax charge on the shares (or the cash amount of such shares) arises either:

a) On the date of vesting (rather than grant date) of the RSU; or
b) Where the shares or cash pass to the employee/director on a date prior to the date of vesting, on that prior date.

Again from the manual, the responsibility for payment of tax is the Employers under PAYE withholding at date of vesting.

jace_da_face

As a final point of clarity, if you folks will indulge me , but are we saying that one should not be paying tax on these shares until the agreed time period is up? That time period being the 3 years that was mentioned which is the vesting period right? So no tax payable until the vesting period has elapsed?

It turns out now, that apart from the total tax bill falling due immediately in the first year, that she is now also being charged bic. I mean, these RSUs are designed to be the carrot and not a stick surely?

iebamm2580

After 3 years you pay only cgt if the shares have made a profit, no other tax applies, the work share scheme im in when i buy in year 1 i pay usc and prsi i.e 12% of the total im buying, im exempt from income tax on these shares if i leave them in for 3 years. the carrot is im avoiding paying income tax on some of my salary, 12700 is the limit a person can purchase.

jace_da_face

That is how I would have figured it, unfortunately her company’s account doesn’t seem to think so. I can’t figure it, I really can’t.

relax carry on

jace_da_face wrote: »

That is how I would have figured it, unfortunately her company’s account doesn’t seem to think so. I can’t figure it, I really can’t.

Provide them with a link to the share scheme manual for RSUs from the Revenue website highlighting the tax treatment of. Unless these aren't RSUs but are something else, I'm baffled by what they are doing.