Missed US Tax Returns After a Startup Tender Offer in the UK

If you sold US startup shares in a company-run tender offer while living in the UK and never reported it, the fix is to file the missed US tax returns (or amend the ones you filed), split any premium over fair market value from the capital gain, rebuild basis in dollars and sterling, and align the UK Self Assessment so foreign tax credits actually work.

Tender offers have become the main liquidity event for employees of late-stage US venture-backed companies. For an American living in London, they are also one of the most common sources of silent non-compliance: the proceeds land in a US brokerage account, the paperwork arrives in the middle of a UK tax year, and the employee often assumes the company "took care of the tax". It rarely did, at least not on both sides of the Atlantic. This guide explains how the sale is taxed by the IRS and HMRC, where the two systems disagree, and how Jungle Tax brings a missed year back into compliance without turning a documentation problem into a penalty problem.

What is a startup tender offer, and why does it create a filing obligation?

In a typical tender offer, a private US company (or a group of investors it has lined up) offers to buy a capped number of common shares from current and former employees at a fixed price per share. The shares may come from exercised stock options, from settled restricted stock units (RSUs), or from early-exercised restricted stock. The employee receives cash, usually net of any withholding the company decided to apply, and the transaction is administered through the company's equity management platform.

Because a US citizen or green card holder is taxed on worldwide income regardless of residence, the sale is reportable on Form 1040 for the calendar year in which it closed. Because the seller is UK resident, the same disposal is also reportable to HMRC for the UK tax year (6 April to 5 April) in which it fell. Two returns, two tax years, two currencies and, frequently, two different characterisations of the same dollar of proceeds. That is where the trouble starts.

Is a tender offer premium compensation or capital gain for the IRS?

The single most important question in any tender offer review is whether the price paid exceeded the fair market value of the common stock. For a private company, fair market value is normally evidenced by the most recent Section 409A valuation, which is often well below the price investors pay for preferred stock and below the tender price itself.

There is no bright-line regulation on this point. The analysis runs through Section 83 and general compensation principles, and it turns on facts and circumstances. The factors that push the excess toward compensation include:

• Who the buyer is. Where the company itself repurchases the shares, a premium over fair market value is very difficult to characterise as anything other than a payment connected with employment. Purchases by significant existing investors attract similar scrutiny.
• Who may participate. An offer open only to employees and former employees looks compensatory; an offer in which outside, non-employee holders sell on identical terms supports investment treatment.
• How the price was set. A price negotiated at arm's length by a new third-party investor is stronger evidence of value than a price set by the board as a retention or reward measure.
• Accounting treatment. If the company books the excess as stock-based compensation expense, the capital gain argument is weakened.
• Frequency. Regular, programmatic liquidity windows look more like a compensation feature than a one-off transaction.

Where the company concludes the excess is compensation, it will usually report that amount as wages on Form W-2 (for a current employee) and may withhold federal income tax and FICA. For a former employee, the reporting can be less predictable. Only the balance, meaning fair market value less your basis, is treated as capital gain. The consequence is material: compensation is taxed at ordinary rates up to 37%, while long-term gain on shares held for more than a year is generally taxed at up to 20%, plus the 3.8% Net Investment Income Tax where it applies.

The double-counting trap

The error we see most often is not under-reporting but mis-reporting. The full tender proceeds are shown on a Form 1099-B, frequently with no cost basis reported. Meanwhile the premium has already been included in W-2 wages. If the 1099-B is entered at face value, the premium is taxed twice and the option or RSU income already taxed at exercise or vest is taxed again as gain. A correct return adjusts basis on Form 8949 so that each dollar is taxed once and in the right character.

Options, ISOs, NSOs and RSUs: how the share type changes the answer

The origin of the shares determines both the US basis and whether any earlier income event was missed as well.

• Non-qualified stock options (NSOs). The spread at exercise is compensation. Your US basis is the exercise price plus the amount included in income. If you exercised while abroad and the spread never appeared on a W-2 or your return, the exercise year may itself be a missed year.
• Incentive stock options (ISOs). Exercise is reported to you on Form 3921. There is no regular income at exercise, but the spread is an Alternative Minimum Tax adjustment. A sale within one year of exercise or two years of grant is a disqualifying disposition, which converts part of the gain into ordinary compensation income. Tender offers frequently trigger disqualifying dispositions for employees who exercised late.
• Employee stock purchase plan shares. Private companies rarely run them, but where they exist Form 3922 records the data needed for the ordinary income calculation on sale.
• RSUs. Private-company RSUs often carry a double trigger, so the shares may only have been delivered, and taxed as wages, shortly before or even at the tender. Basis equals the value taxed at settlement.
• Early-exercised restricted stock. Whether a Section 83(b) election was filed controls whether later appreciation is capital. A missing or late 83(b) can change the whole computation.

For companies that meet the conditions, gain on stock held for more than five years may qualify for the Section 1202 exclusion for qualified small business stock. US citizens abroad can claim it, but HMRC does not recognise it, so where it applies the UK capital gains tax becomes the real cost of the sale.

How do you reconstruct cost basis for a missed year?

Basis reconstruction is the core of any catch-up engagement, and it must be done twice: once in dollars for the IRS and once in sterling for HMRC. The sources we rely on are:

• The equity management platform's grant, vesting, exercise and transaction history, exported in full rather than as a summary.
• Form 3921 and Form 3922 data for ISO exercises and any ESPP purchases.
• W-2s and final payslips showing the income recognised at exercise, vest and on the tender premium.
• The tender offer documents, which state the price, the buyer, the participation terms and, often, the company's intended tax treatment.
• The 409A valuation reports that bracket the grant, exercise and tender dates, where the company will share them.
• Board or plan documents evidencing any 83(b) election and its filing date.

For the UK computation, each acquisition and the disposal are translated into sterling at the exchange rate for the relevant date. Currency movements alone can produce a UK gain that differs sharply from the US gain on the same shares, which is one reason foreign tax credits rarely line up neatly.

How does HMRC tax a tender offer sale by a UK resident?

On the UK side, shares acquired by reason of employment are employment-related securities, and the employment-related securities rules in Part 7 of the Income Tax (Earnings and Pensions) Act 2003 apply alongside capital gains tax.

Disposal for more than market value

Chapter 3D of Part 7 imposes an income tax charge where employment-related securities are disposed of for more than their market value. HMRC's manual sets out the computation as consideration received, less market value at disposal, less expenses of the disposal, and the charge falls in the tax year of the disposal (see HMRC ERSM80030 and the chapter overview at ERSM80010). The UK test uses the UK concept of market value, which is not automatically the same figure as a 409A valuation. Where the shares are readily convertible assets, which a structured tender with a committed buyer may make them, the employer may also have PAYE and National Insurance obligations, and the event should appear on the company's employment-related securities return.

The capital gains element

The remainder of the proceeds is a capital disposal. The UK base cost is broadly what you paid plus any amount already charged to UK income tax on acquisition, all in sterling. UK CGT rates on shares are currently 18% and 24% for individuals, subject to the annual exempt amount, which is now small.

The time-apportionment problem

If the options or RSUs were granted while you were working in the US and vested after you moved to London, the income at exercise or vest is apportioned between the two countries under HMRC's internationally mobile employee rules, and treaty relief follows that apportionment. Getting that apportionment wrong on the earlier income event distorts the UK base cost at disposal.

US vs UK treatment at a glance

Issue	US (IRS)	UK (HMRC)
Tax year	Calendar year	6 April to 5 April
Price above fair market value	Excess usually compensation under Section 83 principles; often on Form W-2	Excess over market value taxed as employment income under ITEPA Part 7 Chapter 3D
Benchmark value	Typically the 409A valuation	UK market value, which may differ
Balance of proceeds	Capital gain, long- or short-term by holding period	Capital gain at 18% or 24%
Basis currency	US dollars	Sterling at transaction-date rates
ISO disqualifying disposition	Ordinary income on part of gain; AMT history matters	No ISO concept; UK treats the option under general ERS rules
QSBS (Section 1202)	Exclusion may apply	Not recognised
Payroll taxes	FICA may apply to the compensatory premium	PAYE and NIC possible if readily convertible
Catch-up route	Streamlined Foreign Offshore, late or amended returns	Late Self Assessment or voluntary disclosure

Sourcing and foreign tax credit basket mismatches

This is where generalist advice most often fails. A US citizen resident in the UK normally avoids double tax by claiming a foreign tax credit on Form 1116 for UK tax paid (see About Form 1116). That only works if the income is foreign source and sits in the same basket as the UK tax.

• The compensatory premium is compensation for services and is sourced where the services were performed. Work performed in the UK produces foreign-source general-category income, and UK income tax on the Chapter 3D charge can credit against it. If part of the service period was spent in the US, part of the premium is US source, and no foreign tax credit is available against that part under the general rules.
• The capital gain on personal property sold by a US citizen is, by default, US source. A US citizen with a foreign tax home can treat it as foreign source only where foreign income tax of at least 10% of the gain is actually paid. Otherwise the US-UK income tax treaty's resourcing rules may be needed to create foreign-source income for credit purposes. The gain falls in the passive category basket, separate from the general basket.
• Character mismatches occur when the IRS treats an amount as compensation and HMRC treats it as gain, or vice versa. The UK tax then sits in one basket while the US income sits in another, stranding credits and leaving residual US tax that should not exist.
• Timing mismatches arise because a tender closing in, say, February falls in one US year but the prior UK tax year. The UK liability may not be paid until the following January, so the accrual or paid method for credits, and carryback or carryforward of excess credits, needs deliberate handling.
• Net Investment Income Tax is a separate federal tax, and the IRS position is that foreign tax credits do not offset it. For a large gain, it can be the residual US cost that surprises UK-resident sellers.

Our US-UK tax accountants model both returns together before either is filed, because a UK figure changed after the US return is lodged can undo the credit position.

How do you catch up missed US tax returns after a tender offer?

The right route depends on what was missed and whether the failure was non-willful.

Streamlined Foreign Offshore Procedure

For US persons living abroad who missed returns or foreign information reporting through non-willful conduct, the Streamlined Foreign Offshore Procedure is usually the cleanest solution. It requires the last three delinquent or amended federal returns, the last six years of FBARs, and a signed certification of non-wilfulness on Form 14653, and it carries no miscellaneous offshore penalty for those who meet the non-residency test. The IRS sets out the conditions on its Streamlined Filing Compliance Procedures page. Tender offer sellers are frequently in scope because the same person who missed the sale has often also missed FBAR or Form 8938 reporting on UK bank, pension and ISA accounts. Our IRS streamlined filing experts handle the certification narrative, which is the part the IRS reads most closely.

Late original or amended returns outside Streamlined

Where only a single year is missing, all FBARs are in order and no foreign information returns were omitted, a late original return (or Form 1040-X where a filed return left out the sale) may be enough. Late filing and late payment penalties are computed on the net tax due, so where UK tax credits reduce the US liability substantially, exposure can be modest. Where a balance is due, reasonable-cause relief or first-time abatement may be available.

The UK side

If the disposal was also left off your Self Assessment, the UK return must be filed or amended, with interest and potentially penalties. Where the amendment window has closed, a voluntary disclosure through HMRC's digital disclosure service is the usual route. Both sides should be corrected together so the credit position is consistent.

A worked example

An American engineer has lived in London since 2021 and was employed throughout by a US venture-backed company. In March 2025 she sold 20,000 shares in a company-run tender at $30 per share. The most recent 409A value was $22. Half the shares came from NSOs exercised in 2022 at a $4 strike when the value was $10; half came from RSUs settled in 2024 at $20.

• US: the $8 per share premium, $160,000 in total, is compensation, reported on her W-2. The capital gain is measured against the $22 value: on the NSO shares, $22 less a $10 basis gives $12 per share of long-term gain; on the RSU shares, $22 less $20 gives $2 per share, short- or long-term depending on the settlement date. The 1099-B shows $600,000 of proceeds with no basis and must be adjusted.
• UK: the sale falls in the 2024-25 tax year. Subject to HMRC agreeing a market value, the excess over market value is employment income under Chapter 3D, and the balance is a capital gain computed in sterling from base costs that reflect amounts already taxed on exercise and settlement.
• Credits: UK income tax on the premium credits in the general basket; UK CGT credits in the passive basket, with treaty resourcing considered for the gain. She never filed her 2025 Form 1040 and has not filed FBARs since arriving, so the Streamlined Foreign Offshore Procedure is the natural path.

The figures are illustrative; the point is that a single sale produces three distinct US characters of income and two UK ones, and each must be matched.

Related information returns you may also have missed

• FBAR (FinCEN Form 114) for UK bank, savings, ISA and pension accounts where the aggregate exceeded $10,000 at any point in the year. Estimate exposure with our FBAR penalty calculator.
• Form 8938 where specified foreign financial assets exceed the higher thresholds for taxpayers living abroad.
• Form 8621 for UK funds held inside an ISA or general investment account, which are commonly passive foreign investment companies.
• Form 3520 questions for certain UK pension arrangements, depending on their structure.

Common mistakes that turn a tender offer into a problem

• Assuming company withholding satisfied the US liability. Withholding is often at a flat supplemental rate that bears no relation to the true tax.
• Reporting the 1099-B gross with zero basis, doubling the tax.
• Filing the UK return on the US figures without currency conversion at the correct dates.
• Ignoring the ISO holding periods and missing a disqualifying disposition.
• Claiming the foreign earned income exclusion against the premium without considering that it prevents a credit for UK tax on the same income, when the credit is usually worth more at UK rates.
• Correcting the US year and forgetting the UK year, or vice versa.

Why a prepared catch-up matters for high earners

Tender proceeds are often large, and the IRS and HMRC now exchange information routinely. A proactive, well-documented filing, prepared before either authority raises questions, preserves access to the Streamlined procedures and the most favourable UK penalty outcomes. For clients with broader holdings, our high-net-worth tax team prepares the full US and UK compliance picture in one engagement.

If you sold shares in a US startup tender offer while living in the UK and the sale is missing from either return, speak to us before the next filing deadline. We will rebuild your basis, reconcile both returns and file the catch-up on the right procedure. Contact our cross-border team for a confidential consultation.