US employee stock purchase plans for UK staff

Q: How does this look in practice?

Illustration only, using sterling figures for simplicity. Tom, a basic rate taxpayer, saves £2,000 over an offering period. On the purchase date the plan buys 100 shares for him at £20 each when the market value is £26. The taxable amount is £600. His employer deducts income tax of £120 at 20% and employee National Insurance of £48 at 8%, and pays employer National Insurance of £90 at 15%. His base cost is £2,000 plus £600, or £2,600. If he later sells all 100 shares for £3,000, his gain is £400.

For a UK employee, the discount on shares bought through a US employee stock purchase plan is employment income on the purchase date: the market value of the shares that day, less the price paid, is taxed under section 476 ITEPA 2003. Because the parent’s shares are normally listed, the UK employer must operate PAYE and Class 1 National Insurance on that amount. When the shares are later sold, their CGT base cost is the price paid plus the discount already taxed, converted to sterling.

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How does a US ESPP usually work?

A US parent company invites employees across the group, including UK staff, to save a set amount from each pay packet over an offering period. At the end of the period the accumulated savings buy shares in the parent at a price below market value. Many plans fix that price by reference to the share price at the start or the end of the period, whichever is lower, so the discount can be much larger than the headline percentage when the share price rises during the period.

These plans are designed around US tax rules. None of the US favourable treatment carries across to the UK. A US ESPP is not one of the four UK tax advantaged schemes, so for UK purposes it is simply a non tax advantaged share arrangement. HMRC’s general guidance at ERSM20530 notes that where employees buy shares at a discount there is “almost certain to be an employment income charge”.

Is the purchase right a share option for UK tax?

In the usual design, yes. Section 420(8) ITEPA 2003 defines a securities option as “a right to acquire securities”, and that wide definition is not limited to formal contractual options (ERSM110015). Joining an offering period gives the employee a right to buy shares on the purchase date, so Chapter 5 of Part 7 applies under section 471, because the right is made available by reason of the employment. Since 6 April 2016 shares acquired under any securities option are taxed under Chapter 5 rather than as ordinary earnings.

Two consequences follow. There is no income tax when the employee enrols, because section 475 exempts the acquisition of the option. And the charge falls when the shares are bought, which is a chargeable event under section 477(3)(a).

Some plans instead let employees buy shares immediately at a discount, without any waiting period. That is not an option, but the discount is still taxable as employment income on the purchase. The amount is the same in principle; only the charging provision differs.

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How much of the discount is taxed?

Under section 478 the taxable amount is the gain on the chargeable event less deductible amounts, which means the market value of the shares on the purchase date less the price the employee paid. The headline plan discount is irrelevant: what counts is the actual value received on the day. If the plan uses the lower of the start and end prices, a rising share price produces a larger taxable amount than the stated discount would suggest.

The employee’s contributions are their own money set aside from pay. They are not a separate charge, and the employee is taxed only on the difference between what the shares cost and what they were worth.

How are PAYE and National Insurance collected?

Section 700 treats the UK employer as providing PAYE income in the form of the shares on the purchase date, where the shares are readily convertible assets. Section 702 includes any asset that can be sold on the New York Stock Exchange, which it names, or on a recognised investment exchange, or for which trading arrangements exist. Shares of a US listed parent will normally meet this test, so the UK employer must put the taxable amount through payroll even though the shares come from the parent.

Income from employment related securities is earnings for Class 1 National Insurance (NIM06875), so both employee and employer contributions are due on the same amount. As the employee receives shares rather than cash, the tax is usually deducted from the next salary payment. If the employee does not make good the tax within 90 days after the end of the tax year, section 222 treats the unpaid amount as further earnings.

How does this compare with a UK Sharesave scheme?

The UK’s own savings based plan, Save As You Earn, gives options over three or five years at up to a 20% discount, with savings of up to £500 a month, and no income tax or National Insurance on the discount. A group can offer UK staff a Sharesave plan as an alternative, but a US ESPP offered to UK staff on its own has none of these reliefs.

How are the shares treated for CGT when sold?

The base cost is the price paid plus the amount that was taxed as employment income. Section 119A TCGA 1992 adds the section 476 charge to the cost, and section 144ZA keeps the actual price paid as the starting point, as HMRC sets out at CG12398. Without this adjustment, the discount would be taxed twice.

Everything must be in sterling. HMRC’s guidance at CG78310 says the cost of shares bought in US dollars is the sterling equivalent at the exchange rate on the acquisition date, and dollar sale proceeds are converted at the rate on the disposal date. Currency movements can therefore create a sterling gain or loss.

Each purchase adds shares of the same class to the section 104 pool, after the same day rule in section 105 and the 30 day rule in section 106A. An employee who buys twice a year and sells regularly needs to track the pooled cost carefully; see share matching rules and base cost of shares from employee share schemes. Gains above the £3,000 annual exempt amount are taxed at 18% or 24% for 2026 to 2027 (see capital gains tax rates).

How does this look in practice?

Illustration only, using sterling figures for simplicity. Tom, a basic rate taxpayer, saves £2,000 over an offering period. On the purchase date the plan buys 100 shares for him at £20 each when the market value is £26. The taxable amount is £600. His employer deducts income tax of £120 at 20% and employee National Insurance of £48 at 8%, and pays employer National Insurance of £90 at 15%. His base cost is £2,000 plus £600, or £2,600. If he later sells all 100 shares for £3,000, his gain is £400.

What mistakes come up most often?

Assuming the plan is tax free in the UK because it is “qualified” in the US.
Using only the price paid as the CGT cost, so the discount taxed through payroll is taxed again.
Reporting a US broker’s dollar figures without converting each acquisition and disposal to sterling at the right date.
Ignoring the 30 day and same day matching rules when buying and selling in the same period.
The UK employer failing to register the arrangement and file the “other” ERS return by 6 July; see employment related securities basics.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.