Restricted Stock Units (RSUs) are a common form of remuneration in the technology, finance, and start-up sectors. While they can significantly increase your overall compensation, RSUs often come with complex UK tax implications that many employees underestimate.
This guide explains how RSUs are taxed in the UK, when you need to complete a Self Assessment tax return, and how to manage Income Tax, National Insurance, and Capital Gains Tax efficiently.
What Are Restricted Stock Units (RSUs)?
Restricted Stock Units (RSUs) are shares awarded to employees as part of their pay package. Unlike share options, RSUs do not require you to purchase the shares — instead, they are granted outright but subject to vesting conditions.
You only become the legal owner of RSUs once they vest.
What Is a Vesting Period?
The vesting period is the time you must wait before gaining ownership of your RSUs. Vesting can be:
- Time-based (e.g. 25% per year over four years)
- Performance-based
- A combination of both
RSUs have no tax implications when granted — tax only arises when they vest.
How Are RSUs Taxed in the UK?
RSUs are taxed in the UK at two separate stages:
- When the RSUs vest
- When the shares are sold
Tax on RSUs at Vesting
When RSUs vest, their market value on the vesting date is treated as employment income.
This income is subject to:
- Income Tax
- Employee National Insurance Contributions (NICs)
In most cases, employers withhold tax through PAYE, often by selling some of the shares automatically to cover the tax bill.
Example:
- 1,000 RSUs vest
- Market value at vesting: £50 per share
- Taxable income: £50,000
This £50,000 is added to your employment income and taxed accordingly.
Tax When RSU Shares Are Sold
If you sell RSU shares after vesting, you may be liable to Capital Gains Tax (CGT) on any increase in value.
How the gain is calculated:
- Sale price
- Minus market value at vesting
- Minus any allowable CGT exemptions
Only the post-vesting growth is subject to CGT.
UK Tax Rates That Apply to RSUs
Income Tax (Employment Income)
- 20% – Basic rate
- 40% – Higher rate
- 45% – Additional rate
National Insurance (Employee)
- 8% on earnings between the Primary Threshold and Upper Earnings Limit
- 2% on earnings above the Upper Earnings Limit
Capital Gains Tax (Shares)
- 10% for basic-rate taxpayers
- 20% for higher and additional-rate taxpayers
The annual CGT exemption is £3,000 for the 2024/25 tax year.
Do RSUs Need to Be Reported on a Self Assessment Tax Return?
Yes — many UK employees with RSUs must file a Self Assessment tax return, particularly if they:
- Have capital gains from selling RSU shares
- Receive dividends from shares
- Earn over £100,000
- Are internationally mobile or non-UK resident for part of the year
- Need to claim double taxation relief
Even if tax is withheld via PAYE, capital gains and foreign elements must still be reported.
Registering for Self Assessment for RSU Income
If you need to report RSU-related income or gains, you must:
- Register for Self Assessment by 5 October following the end of the tax year
- File online by 31 January
- Pay any tax owed by 31 January
Non-UK residents or internationally mobile employees may also need to complete SA109 residency pages.
Common RSU Tax Pitfalls (and How to Avoid Them)
- Double Taxation
If you worked overseas while earning RSUs, income may be taxable in more than one country. The UK’s double taxation treaties often allow relief — but this must be claimed correctly.
- Ignoring National Insurance
NICs on RSUs can be substantial and are often overlooked when planning.
- Currency Exchange Issues
RSUs denominated in foreign currencies must be converted to GBP using HMRC-approved exchange rates on vesting and sale dates.
How Can I Reduce Tax on RSUs?
Avoiding the £100,000 “60% Tax Trap”
If your income (including RSUs) exceeds £100,000, your Personal Allowance is withdrawn, creating an effective 60% tax rate on income between £100,000 and £125,140.
Making pension contributions can reduce your adjusted net income and preserve your Personal Allowance.
Reducing Capital Gains Tax on RSUs
Common CGT planning strategies include:
- Selling shares at vesting to avoid capital gains
- Using your annual CGT exemption
- Transferring shares to a spouse (tax-free transfer)
- Re-purchasing shares via an ISA or SIPP (future growth sheltered)
Each option depends on your wider tax position and long-term goals.
Example: How RSUs Are Taxed in the UK
Scenario:
- 150 RSUs vest at £80 per share
- Total value: £12,000
At Vesting:
- Income Tax (40%): £4,800
- NICs (2%): £240
- Total tax: £5,040
- Net value received: £6,960
If Shares Are Sold Immediately:
- No capital gain → no CGT
If Sold Later at £120 per Share:
- Sale value: £18,000
- Capital gain: £6,000
- Less CGT allowance: £3,000
- Taxable gain: £3,000
- CGT at 20%: £600
Key Takeaways
- RSUs are taxed as employment income when they vest
- Any growth after vesting is subject to Capital Gains Tax
- Many RSU holders must file a Self Assessment tax return
- International mobility and high earnings increase complexity
- Advance planning can significantly reduce tax exposure
RSUs can be extremely valuable — but only if the tax consequences are managed correctly.
FAQs
What are RSUs and how are they taxed in the UK?
RSUs are shares awarded to employees. They are taxed as employment income at vesting and may incur CGT when sold.
Do I need to declare RSUs on my Self Assessment?
Yes, especially if you have capital gains, dividends, foreign income, or complex residency issues.
How are capital gains from RSUs taxed?
Capital gains are taxed at 10% or 20% depending on your income level, after applying the annual exemption.
What are common RSU reporting mistakes?
Failing to report capital gains, misunderstanding residency rules, missing NIC liabilities, and filing late.
