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I've recently joined a company that offers a ESPP scheme and I just wanted to get a few bits of information as well as confirm that my understanding is correct.

  • You choose a percentage that will be withheld from your payslip each month, say 5%.
  • This accumulates over a certain period and at the end of that the money is used to purchase shares at a discounted rate, 15% cheaper than the market rate.
  • You then have a few choices: sell the shares straight away and enjoy a guaranteed profit but have high income tax imposed. OR wait until the disposition becomes qualified and then only pay capital gains tax.

Is this correct?

Additionally, how long must you wait from the share purchase date until the stock disposition is qualified?

NB: If the company is trading on NASDAQ which is US, how does this affect things as I live in the UK?

  • 15% cheaper than the market rate. That is something to ponder on. If the business prospects of the company looking into the future looks good, I would ask why shouldn't I buy. You could ask your company's accounts(finance) department also for help regarding taxation. – DumbCoder Jul 12 '13 at 14:18
  • A couple of other points to ponder: As an employee, can you sell your shares at any time or would you be subject to certain blackout rules? While the company trades on the NASDAQ, do they also trade on a British Stock Exchange and how is the ESPP structured for foreign workers? Could you be subject to US income taxes as well as British income taxes? – JB King Jul 12 '13 at 16:44
  • Further to JB Kings comment you will have to register with the IRS form W8-BEN to avoid double taxation as would any foreign holder of US shares. – Neuromancer Aug 19 '13 at 8:43
  • ah I just saw you are a uk resident participating in an US based ESPP which woudl make it a non approved scheme in the UK. You need to get the company to explain to you what the tax implications are for UK taxpayers. – Neuromancer Aug 19 '13 at 16:51
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ESPP is common among US companies, often with a framework similar to your outline. In the US, some ESPPs allow sales of shares to be considered qualifying (subject to capital gains rather than ordinary income tax) if they are sold at least 2 years after the enrollment date and at least 1 year after the purchase date. These details can vary from one plan to another and will be stated in the company's ESPP enrollment documents.

Do look at the high and low values of the stock over the last year. If it swings up and down more than 15% (or whatever the discount is), then that risk should be a factor in your decision. If the stock is trending upward over the long term and you are confident in the durability of the company, then you might favor holding.

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    +1 for the information. However, the one time I have been involved in a scheme like this, the stress and hassle of the US tax shenanigans very nearly outweighed the benefit of the scheme - and that was with US tax / accounting help provided by the employer. – Vicky Jun 7 '15 at 11:46

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