US Personal Tax Services: Bankers' Share Allowances in London

A US-citizen banker in London who receives role-based allowances partly in shares owes tax in both countries when those shares are delivered. The UK charges income tax and National Insurance through PAYE. The US treats the market value on the delivery date as compensation. A retention or holding period usually does not postpone the US charge.

Our US Personal Tax Services team at Jungle Tax prepares returns for senior financial-services employees whose fixed pay includes shares. This guide covers what the US return has to show for role-based allowances: the income figure, workday sourcing, cost basis, foreign tax credits across two different tax years, dividends and sales, and FBAR and Form 8938 reporting for the account that holds the shares. It ends with how to correct earlier years when the allowances were left off. Our work is return preparation and compliance, not remuneration design or investment advice.

What are role-based allowances, and why do they cause US problems?

UK banks brought in role-based allowances (RBAs) to rebalance pay under the regulatory cap on variable remuneration. The UK regulators removed that cap in late 2023, but many firms still pay RBAs, and multi-year catch-up work covers the years when they were common. For regulatory purposes an RBA is fixed pay. It depends on your role, not on performance, and it is normally paid monthly or quarterly. Part is often paid in cash through payroll and part in the employer's shares. The shares may carry a retention or holding period during which you cannot sell them, even though they already belong to you.

The US difficulty is procedural rather than conceptual. A UK employer does not issue a Form W-2. The shares appear on UK payslips as a gross earnings line followed by a matching deduction, and the P60 gives a single total for the UK tax year. Shares may be sold or withheld to cover PAYE, so the number that reaches your brokerage account is smaller than the taxable award. A US preparer who works from the P60, or from the shares they can see, can easily understate the income, the cost basis, or both, and the error then repeats every year.

How RBAs differ from bonuses and deferred awards

• No performance conditions. An RBA does not depend on individual or firm results, which is why regulators count it as fixed pay.
• Delivered, not merely promised. The share element is usually transferred outright to you, or to a nominee holding for you, at each payment date. This is not a promise to deliver shares later.
• Holding restrictions rather than forfeiture. The retention period normally stops you selling. It usually does not make you give the shares back if you leave. That distinction drives the US answer.
• Frequent delivery. Monthly or quarterly deliveries create many separate share lots, each with its own date, price and exchange rate.

How does the UK tax role-based allowance shares?

For UK purposes, shares delivered as part of an RBA are earnings from employment. Listed shares in the employer normally count as readily convertible assets, so the employer operates PAYE income tax and Class 1 National Insurance on their value at delivery through payroll. The resulting tax is usually covered by selling or withholding some of the shares, or by a deduction from cash salary.

If the retention period means the shares are "restricted securities" under the UK employment-related securities rules, the taxable value and any later charge when the restriction lifts depend on the exact plan terms and on whether an election has been made to be taxed on the unrestricted market value at the outset. HMRC's Employment-Related Securities Manual sets out the framework. For most employees the practical outcome is that the full value was taxed through payroll when the shares were delivered. Check the plan documents and the employer's year-end reporting before assuming this.

Where PAYE has taxed the full amount, it is already in the P60 employment figure and does not go in the separate share schemes box on the Self Assessment return. The amount taxed as earnings becomes your UK base cost for capital gains tax when you later sell.

How does the US tax role-based allowance shares?

For a US citizen or green card holder, shares received in exchange for services are compensation income. Under Internal Revenue Code section 83, property transferred in connection with services is taxed when it becomes "substantially vested". That means it is either transferable or no longer subject to a substantial risk of forfeiture. The amount taxed is the fair market value at that point, minus anything you paid.

The substantial risk of forfeiture concept

A substantial risk of forfeiture generally exists only when your right to keep the property depends on performing, or not performing, substantial future services, or on a condition linked to the purpose of the transfer. A bare restriction on selling, where the shares stay yours whether or not you remain employed, is generally not a substantial risk of forfeiture. Under the section 83 regulations, a restriction that will lapse is also ignored when valuing the shares. The usual US result for RBA shares is therefore:

• the shares are taxable in the US year they are delivered;
• at their full, undiscounted fair market value on the delivery date;
• whether or not a retention period prevents sale.

Plans differ. Some RBA share terms include clawback, forfeiture on certain events, or conditions that could meet the forfeiture test. If a real forfeiture condition exists, the US timing may change, and a section 83(b) election within 30 days of transfer may be relevant. Read the plan rules before settling the US position for any year. The IRS explains how it treats restricted property in Publication 525, Taxable and Nontaxable Income.

Gross, not net

The US income figure is the value of all shares delivered. That includes any shares sold or withheld to pay UK PAYE and National Insurance. Using only the net shares in your account is the most common understatement we see on returns we are asked to repair. The UK tax paid from the withheld shares is a foreign tax for credit purposes. It does not reduce the US income figure.

US and UK treatment side by side

Issue	United States (Form 1040)	United Kingdom (PAYE / Self Assessment)
Nature of RBA shares	Compensation income under section 83	Employment earnings; usually readily convertible assets
When taxed	When substantially vested, generally delivery	At delivery through payroll, subject to restricted-securities rules
Effect of retention period	Generally no deferral and no valuation discount for a lapse restriction	Depends on the restricted-securities analysis and any election
Tax year	Calendar year, 1 January to 31 December	6 April to 5 April
Currency	US dollars at the exchange rate for the delivery date	Sterling
Social security	Generally no FICA for a UK-employed worker under the totalisation agreement	Class 1 National Insurance through payroll
Cost basis for a later sale	US dollar value included in income, lot by lot	Amount taxed as earnings, subject to UK share-matching rules
Dividends	Taxable; may be qualified dividends at preferential rates	Taxable at UK dividend rates above the dividend allowance
Account reporting	FBAR and Form 8938 where thresholds are met	No equivalent disclosure regime

How are RBA shares sourced between the UK and the US?

Compensation is sourced to where the services were performed. For fixed pay such as an RBA, this is usually worked out on a time basis: the proportion of workdays in the period the allowance relates to that were spent working in the United States is US-source, and the remainder is foreign-source. For a banker who works almost entirely in London, the RBA is largely foreign-source. Days spent working in New York, on US client trips or at US offices can create a US-source slice.

Sourcing matters because the foreign tax credit only offsets US tax on foreign-source income. If 15% of an RBA is US-source, the UK tax on that slice cannot generally be credited under the domestic rules, even though the UK taxed it in full. The US-UK treaty relief provisions, including the re-sourcing rules for US citizens resident in the UK, can recover some of that position. Claiming treaty re-sourcing is a disclosed position that has its own reporting requirements. Keep a travel diary or calendar record of US workdays for every year. It is the evidence any sourcing position depends on.

Foreign tax credits across two different tax years

The UK tax year runs from 6 April to 5 April and the US year is the calendar year. An RBA delivered in, say, February 2026 falls in the UK 2025/26 year and the US 2026 year. One delivered in May 2026 falls in UK 2026/27 and US 2026. Each US return therefore draws on parts of two UK tax years, and the UK tax has to be matched to the right US year.

Practical steps for credit alignment

1. Build a delivery schedule. List each RBA share delivery with date, number of shares, sterling price, gross sterling value and the PAYE and NIC deducted, using payslips rather than the P60 total.
2. Convert each delivery to dollars. Use the exchange rate for the delivery date. A yearly average rate is sometimes used for salary, but share deliveries are better converted lot by lot because the same figures become cost basis.
3. Allocate UK income tax to US years. Taxpayers on the cash method credit UK tax in the year it is paid, which for PAYE broadly follows the payslips. The accrual election for foreign tax credits changes the timing, generally applies for all later years, and is worth modelling before making it.
4. Separate National Insurance. Class 1 NIC paid under the totalisation agreement is generally not a creditable foreign income tax. It does not go on Form 1116.
5. Use the right basket. RBA compensation is general-category income. Dividends and gains on the shares are generally passive-category, and credits do not move between the two.
6. Track carryovers. UK income tax rates on high earners usually exceed the US effective rate on the same income, so excess general-category credits build up. They can generally be carried back one year and forward ten.

At this pay level, the foreign earned income exclusion on Form 2555 is rarely the best basis for the return. It covers only part of the RBA income, it reduces the credits available, and revoking it after it has been claimed generally prevents claiming it again for several years. Most London bankers are better served by a full foreign tax credit return. Compare both before choosing.

Establishing US cost basis in the shares

Your US basis in each lot of RBA shares is the dollar amount included in income for that lot, plus anything you paid. The US holding period for each lot starts on its delivery date. That gives you:

• A separate lot for each delivery. Monthly delivery produces twelve lots a year and quarterly delivery four, each with its own dollar basis.
• Lot-level currency. The basis is fixed in dollars at the delivery-date exchange rate. On a later sale, the proceeds are converted at the sale-date rate, so sterling movements feed into the US gain or loss.
• No basis for shares you never received. Shares withheld for PAYE were included in income and then disposed of immediately. The disposal usually produces little or no gain, but it should be reflected consistently.

A brokerage or plan administrator's cost basis figures are sterling and UK-focused. The US basis almost always has to be rebuilt from delivery records. Without that work, preparers sometimes default to a zero basis, which taxes the RBA income a second time as capital gain.

Dividends paid on RBA shares

Once delivered, the shares are yours and normally receive dividends during the retention period. The UK has no withholding tax on dividends paid by UK companies, so the UK charge arises through Self Assessment at your marginal dividend rate above the dividend allowance. The ordinary and upper dividend rates increased from April 2026. On the US return the dividends are taxable. Dividends from a UK company that qualifies under the treaty are generally qualified dividends taxed at long-term capital gains rates, and they may attract the 3.8% net investment income tax.

Because the UK dividend tax is paid through Self Assessment, usually the following 31 January, the credit timing is different from PAYE on the shares themselves. Dividend credits are passive-category. The IRS does not accept foreign tax credits against the net investment income tax under the Code. Treaty-based arguments exist, but they are contested and should be weighed before they are claimed.

Selling the shares after the retention period

When the retention period ends and you sell, both countries charge tax on the gain, measured differently:

• US: sale proceeds in dollars at the sale-date rate, minus the dollar basis of the specific lot sold. A lot held more than one year from delivery gives a long-term gain. The sale is reported on Form 8949 and Schedule D.
• UK: sale proceeds in sterling minus the UK base cost. HMRC's share-matching rules apply: same-day acquisitions first, then acquisitions within the next 30 days, then the section 104 pool. They cannot be overridden by choosing a lot. Capital gains tax applies above the annual exempt amount at the current higher rates.

Because the US identifies specific lots and the UK pools, and because currency gains exist only in the US calculation, the two gains rarely match. A sale can show a UK gain and a US loss, or the reverse. Passive-category credit for UK capital gains tax is available only to the extent the gain is treated as foreign-source or re-sourced under the treaty. Model this before a large sale rather than discovering it at filing time.

FBAR and Form 8938 for the account holding the shares

RBA shares are almost always held in an account opened with a UK plan administrator, broker or custodian, often in a nominee name with you as beneficial owner. For US information reporting:

• FBAR (FinCEN Form 114). A US person must file if the combined maximum balances of foreign financial accounts exceed $10,000 at any time during the calendar year. A UK securities or nominee account holding your RBA shares is generally a reportable financial account. At RBA values the threshold is usually crossed in the first delivery month.
• Form 8938. A US citizen living abroad files if specified foreign financial assets exceed $200,000 at year end or $300,000 at any time (single), or $400,000 and $600,000 (married filing jointly). Foreign-held shares count whether held through an account or directly.

Report the account holding the shares, the salary account the cash RBA is paid into, and any account that receives sale proceeds. The IRS comparison of Form 8938 and FBAR requirements sets out the overlap. Use our FBAR penalty calculator for an early view of exposure if filings were missed.

Catching up years where RBA shares were omitted

We regularly see bankers who filed US returns every year but reported only the cash salary shown on the P60, or reported the shares at net value with no cost basis. Others filed nothing and never considered that a UK employer's share account needed an FBAR. The fix depends on which situation applies.

Returns filed, income understated

If you filed but omitted or understated RBA shares, amended returns on Form 1040-X correct the income, add the matching foreign tax credits and set up the correct cost basis. For many London bankers the additional UK tax credits wipe out most or all of the extra US tax on the compensation. Unreported dividends and gains may still leave a balance. Amendments must stay within the refund and assessment time limits, and every year needs a consistent carryover schedule.

Returns or FBARs never filed

If returns or FBARs were never filed and the failure was non-willful, the IRS Streamlined Filing Compliance Procedures are usually the route. The Streamlined Foreign Offshore Procedures, for taxpayers who meet the non-residency test, require three years of delinquent or amended returns and six years of FBARs with a certification of non-willfulness, and currently carry no miscellaneous offshore penalty. Where all income was reported and only FBARs were missed, the delinquent FBAR submission procedures may be enough. Our IRS streamlined filing team prepares full submissions, including the narrative certification, which has to hold up under IRS review.

Documents to assemble

• Payslips for each delivery month, showing the gross share value and the related tax and NIC.
• P60s and, where applicable, P11Ds for each UK tax year.
• Plan rules and award letters describing the retention period and any forfeiture or clawback terms.
• Brokerage or nominee account statements, including year-end and peak balances.
• UK Self Assessment returns and calculations for dividends and gains.
• A US workday record for each year.

Common errors on US returns for London bankers

• Reporting only the P60 salary figure and missing the share element entirely.
• Reporting net shares after sell-to-cover instead of the gross delivered value.
• Treating the retention period as deferring US income.
• Crediting UK National Insurance as income tax on Form 1116.
• Claiming the foreign earned income exclusion and then finding the credits wasted.
• Using a zero or sterling cost basis on a later sale.
• Omitting the nominee account from the FBAR because it is "the employer's account".
• Ignoring US workdays, which overstates foreign-source income and the credit limit.

Senior employees with RBAs usually also have deferred bonuses, buy-out awards and pension issues across the same years. Our US-UK tax accountants for executives prepare all of these on one consistent set of US and UK schedules. Where the UK Self Assessment also needs attention, our UK tax services team files the UK side.

Speak to a cross-border preparer

Role-based allowances paid in shares create income, basis, credit and reporting work every month they are delivered, and mistakes build up quietly year after year. Whether you need this year's return prepared correctly or several years caught up, we will rebuild the delivery schedule, reconcile it to your UK filings and bring your US position fully up to date. Contact our cross-border team for a confidential consultation.