Taxation of Restricted Stocks (RS)

Hi,

I'm a US citizen living in the UK since a couple of years. However, I got restricted stocks from my company and over the years 1/4 is vested every year.

On the vest date, the broker sells immediately the portion to cover UK Paye and the remainder of stocks go into my account. So far so good.

Problem are the US taxes. As a made up sample, I got 10 RS for $0 and sell them a year after they got vested for $100 each, makes it $1000 that I have to declare on my US tax return ending up paying $200 in capital gain taxes.

Lets assume the stock price on the vesting date and a year later is the same $100. That technically mean I'm getting taxed twice. I paid a fortune in UK taxes and on top I have to pay US taxes on the $1000.

That doesn't seem right to me. Maybe someone is in the same situation.

Thanks

Why is the compensatory element of the profit taxed at capital gains rates? It is employment income sourced over the vesting period (so some of it is prior year income).

I would like to offer some comments on this.

Article 14 of the UK US double tax treaty deals with employment income. The Exchange of Notes between the UK and US issued to accompany the treaty confirms that share gains are within this Article.

I would have expected that the share gain would be taxed in the US under its citizenship rules, and then tax relief given for the UK tax. Is it not the case that the US views this gain as subject to income tax, rather than capital gains tax?

It is a separate matter, but for UK tax purposes it is possible to elect to pay the income tax on the grant of the restricted shares at their then value. This would require some considerable confidence in the future movement in the stock values.