Many UK employees in tech and large companies receive part of their pay as Restricted Stock Units (RSUs). They can be a powerful wealth-builder — but the tax rules are tricky, and common mistakes can cost thousands. Here’s how to get them right.
What Are RSUs?
An RSU is a promise from your employer to give you shares in the company after a set period (the “vesting period”). Unlike options, you don’t pay anything upfront — the shares are simply awarded to you when they vest.
- Grant date — Your employer promises you a number of shares.
- Vesting period — Typically 3–4 years, often with a 1‑year cliff. You must stay employed for the shares to vest.
- Vesting date — The shares are transferred to you and you become a shareholder.
The key difference from cash bonuses: the value depends on the share price at vesting. If the company’s share price doubles, your RSUs double. If it halves, so does their value.
How RSUs Are Taxed in the UK
RSUs are taxed in two stages.
At Vesting: Income Tax + National Insurance
When RSUs vest, HMRC treats the market value of the shares as employment income. You pay:
- Income tax at your marginal rate (20%, 40%, or 45%)
- National Insurance at the employee rate (currently 8% on earnings between £12,570 and £50,270, plus 2% above that)
Most employers handle this through PAYE — they sell enough shares to cover the tax and hand you the rest. But not all do, so check with your employer.
After Vesting: Capital Gains Tax
Once the shares are in your account, any future growth (or loss) is subject to Capital Gains Tax (CGT) when you sell. The CGT rates for shares are:
- 18% for basic-rate taxpayers
- 24% for higher/additional-rate taxpayers (from 2024–25 onwards)
You also have a £3,000 annual CGT allowance (as of 2024–25) to use against gains.
Example: £50,000 RSU Vesting
Say 1,000 shares vest at £50 each, giving you £50,000 of income.
| Item | Amount |
|---|---|
| Gross vesting value | £50,000 |
| Income tax (40% higher rate) | −£20,000 |
| National Insurance (~8% up to £50,270) | −£2,200 |
| Net amount after tax/NI | ~£27,800 |
You’d receive roughly £28,000 in cash or sellable shares. If you hold those shares and they grow by £10,000 before you sell, you’d pay CGT on that gain — not on the original £50,000.
Common Mistakes to Avoid
Holding Too Long (Concentration Risk)
The biggest mistake. If your RSUs are in your employer’s shares, you already depend on that company for your salary. Holding RSUs long-term doubles down on the same risk. If the company struggles, you could lose both your job and a chunk of your savings at the same time.
Not Setting Aside Money for Tax
If your employer doesn’t sell‑to‑cover automatically, you could face a large tax bill you haven’t prepared for. HMRC won’t wait — and you may need to make payments on account through Self Assessment.
Ignoring National Insurance
Some employees focus on income tax and forget NI. On a £50,000 vesting, that’s easily £2,000–4,000 in NI alone.
Assuming RSUs Are Free Money
They’re part of your compensation. The shares have real value, and the tax is real too. Treat RSUs the same way you’d treat a cash bonus.
Smart RSU Strategies
Sell Immediately and Diversify
The most common advice from financial planners: sell as soon as the shares vest and reinvest the proceeds into a diversified portfolio. You eliminate concentration risk and lock in the value.
Set Up a Sell‑to‑Cover Arrangement
Ask your employer if they offer a sell‑to‑cover facility. The company sells just enough shares to cover income tax and NI, and you receive the remaining shares (or their cash value). This avoids a nasty surprise at tax time.
Use Your CGT Allowance Strategically
If you hold RSUs that have gained value, consider selling gradually each tax year to stay within your £3,000 CGT allowance. This minimises the tax on growth after vesting.
Consider an ISA
Once you’ve received the cash from selling vested RSUs, you can shelter up to £20,000 per year in a Stocks & Shares ISA. Gains inside an ISA are completely tax‑free.
When to Get Professional Advice
RSUs can interact with other income, pensions, and investments in complex ways. Consider speaking to a financial adviser if:
- You have a large RSU vesting (over £100,000)
- You’re approaching the additional rate threshold (over £125,140)
- You have RSUs in a company that’s about to be acquired or IPO
- You’re planning to leave the company soon
Key Takeaways
- RSUs are taxed as income at vesting (income tax + NI), then CGT applies to growth after vesting.
- Don’t hold RSUs in your employer’s shares long-term — diversify.
- Set up sell‑to‑cover to avoid unexpected tax bills.
- Use your CGT allowance and ISA allowance to minimise tax on gains.