If you run LTIP schemes for mobile executives — or you’re personally participating in one — this Upper Tribunal decision should stop you in your tracks. The Michael Saunders v HMRC [2025] UKUT 374 (TCC) judgment, handed down in October 2025 and now drawing wider commentary, confirms something HMRC has long argued: a cash payment under a long-term incentive plan received after an employee becomes non-UK resident can still be fully chargeable to UK income tax. Split-year treatment doesn’t save you if the earnings were earned during UK-resident employment.
The numbers here are not trivial. Michael Saunders received £1,236,956 in January 2017 under stock appreciation rights (SARs) granted by his employer’s parent company. He had left the UK and become non-resident in August 2016. He filed a self-assessment return treating the payment as foreign earnings not taxable in the UK, relying on split-year treatment under Schedule 45 of Finance Act 2013. HMRC disagreed. Both the First-tier Tribunal and now the Upper Tribunal have agreed with HMRC. The tax refund was reversed, and the full sum remains taxable in the UK.
The Facts: A Departure, a Takeover, and a Large Cash Payment
Saunders worked for Hibernia Atlantic UK Ltd (HAUKL) from April 2008 to July 2016. In March 2013 he was granted SARs under an LTIP — highly contingent rights entitling him to a cash payment based on the increase in the parent company’s share value, subject to conditions including continued employment and a sale or IPO event. When he left HAUKL as a “good leaver” and became non-resident, his SARs were preserved. A takeover of HAUKL’s parent triggered the cash-out in January 2017.
HAUKL processed the payment through payroll with PAYE and NIC deductions — correctly, as it turned out. Saunders claimed those deductions back via his self-assessment return, asserting the payment belonged to the overseas part of his 2016/17 split year and was therefore outside the UK tax net. HMRC enquired, disagreed, and amended the return. This litigation followed.
The Two Core Legal Questions
The Upper Tribunal addressed two distinct issues. First: was the SAR payment “employment income” at all under section 62 of ITEPA 2003? Second: if it was, was it attributable to the overseas part of the split year (and therefore tax-free), or to the earlier UK-resident employment period (and therefore fully taxable)?
Saunders argued that under the House of Lords decision in Abbott v Philbin [1961] AC 352, the taxable event should be the grant of the SARs in 2013, not the cash receipt in 2017. If that argument had succeeded, the rights would have been taxable (at near-zero value) when granted — and the 2017 payment would represent the realisation of a previously-taxed asset rather than new employment income. The Upper Tribunal rejected this analysis comprehensively.
Why Abbott v Philbin Didn’t Apply
Abbott v Philbin concerned share options with an immediately realisable value on grant — the employee could sell the option itself in the market on day one. The taxable event was therefore the grant, because that was when “money’s worth” was received. The Upper Tribunal found that Saunders’s SARs were fundamentally different on three grounds.
First, the SARs had no realisable value on grant — they were entirely contingent on a future sale or IPO event that might never happen. There was no market for the rights themselves. Second, their value at grant was not merely uncertain but near-impossible to quantify with any reliability. Third, and critically, Saunders had no control over when or whether the triggering event would occur. This was not a case, as in Abbott, where the employee made a “judicious assessment” of when to exercise rights. The payment resulted from an external corporate event entirely outside his control.
On a realistic appraisal of the facts — which the Tribunal emphasised is the correct approach under s.62 — the 2017 cash payment was earnings from employment, not the realisation of a previously-taxed asset. The HMRC Employment Income Manual at EIM40000 and subsequent sections covers this territory in detail, and the decision aligns squarely with HMRC’s published position.
Split-Year Treatment: Why It Failed
Even accepting that the payment was employment income, Saunders argued it fell within the overseas part of his 2016/17 split year. The Tribunal disagreed on both the facts and the law. Under the statutory framework for globally mobile employees, general earnings are chargeable to tax based on the period to which they are attributable — specifically, the period in which the employment duties were performed. The SARs were granted in 2013 as an incentive for continued performance during UK-resident employment. The payment represented remuneration for those years of service. It therefore related to the UK-resident period, not the overseas part of a later split year.
This is the “trailing income” problem in LTIP design. Incentive rights granted during UK employment carry UK tax exposure with them — even when they vest, pay out, or are triggered years later after the individual has left. Split-year treatment under Schedule 45 of Finance Act 2013 does not override this. The overseas part of a split year only shelters earnings genuinely attributable to overseas duties — and earnings earned during prior UK-resident employment do not qualify.
PAYE: The Employer’s Role in All of This
There is an important employer angle here that CFOs running LTIP schemes need to consider carefully. HAUKL actually processed the 2017 payment through payroll and deducted PAYE and NIC correctly. The employer got it right. The employee then tried to unwind those deductions via self-assessment — unsuccessfully. This serves as a reminder that the employing company’s PAYE obligations on LTIP payouts do not end when an employee departs the UK. If a payment under an incentive plan is triggered post-departure and remains connected to UK employment, the employer may still have a PAYE obligation — and the employee cannot simply override it by filing a different position on their tax return.
For internationally mobile populations, this creates genuine complexity. Payroll teams often lack the information to make accurate attribution judgments, particularly where SARs or phantom equity rights span multiple years and jurisdictions. Getting it wrong exposes employers to PAYE underpayment risk and employees to unexpected UK tax bills years after they assumed they were clean.
What This Means for CFOs Running LTIP Schemes
This decision has four direct implications for anyone running or participating in executive incentive structures with international mobility.
Review your mobile executive population. If senior employees have participated in LTIPs during periods of UK-resident employment and have since relocated overseas, there may be deferred UK tax exposure sitting in outstanding incentive rights. A review of who holds what, when rights were granted, and what the attributable service periods are should be standard governance for PE-backed businesses and multinationals alike.
Don’t assume split-year treatment shelters trailing income. The Saunders case is an authoritative confirmation that it doesn’t. If an individual is banking on split-year relief to avoid UK tax on a future LTIP payout, that assumption needs to be stress-tested against the actual attributable service period, not just the calendar year of receipt.
Employer PAYE obligations survive departure. Even where an employee has become non-resident, if a payment has a UK tax charge the employer may still need to operate PAYE. The PAYE obligations for non-resident employees are complex and fact-specific. Take advice before assuming the obligation falls away on departure.
SAR design matters. The Tribunal’s reasoning partly turned on the high contingency and external nature of the triggering event. Different LTIP structures — phantom equity with deterministic vesting schedules, time-based options, or rights with genuine market value on grant — may produce different outcomes. The closer a right comes to an Abbott v Philbin-style option with immediately realisable value at grant, the stronger the argument that the taxable event is earlier. Scheme design should therefore factor in international mobility scenarios at the outset, not as an afterthought.
The Post-April 2025 Landscape
It’s worth noting that the underlying facts here predate the major non-domicile changes that took effect from 6 April 2025, which replaced the remittance basis with a new four-year foreign income and gains (FIG) regime. The core principles in Saunders — attribution of earnings to the period of UK-resident employment, the limits of split-year treatment, PAYE obligations — remain entirely applicable in the new regime. If anything, the greater clarity now required for residence planning makes a decision like this more, not less, significant as a reference point for structuring mobile executive remuneration.
Key Takeaways
- LTIP cash payments received after UK departure remain UK taxable if attributable to UK-resident employment duties.
- Split-year treatment does not shelter “trailing income” earned during prior UK residence.
- Abbott v Philbin only applies where rights have realisable money’s worth on grant — highly contingent SARs do not meet that test.
- Employers may retain PAYE obligations on post-departure LTIP payouts — employees cannot unilaterally override PAYE deductions via self-assessment.
- Scheme design and international mobility planning should be aligned from the outset, not retrofitted.
If you run executive incentive plans, have mobile employees with outstanding LTIP rights, or are advising on the tax treatment of deferred remuneration for departing executives, contact Mark Hendy at Tanous. With over 30 years of experience as a CFO and registered HMRC tax agent, Mark provides practical, direct advice on employment tax, incentive structures, and international compliance — without the corporate overhead.