If your employer pays part of your remuneration in company shares — often called RSUs, or Restricted Stock Units — it is worth understanding how and when they are taxed. This is common at larger companies, particularly in the tech sector. Below is a summary of the tax rules, along with some of the ways people commonly manage that tax bill.

What are RSUs?

An RSU is a promise from your employer to give you company shares on a future date, as long as you are still employed when that date arrives. Unlike a share option, you do not have to buy the shares. Once the RSUs vest, the shares become yours and have a market value.

There are two dates that matter. The grant date is when the shares are promised to you — nothing is taxed at this point. The vesting date is when the shares actually become yours and you are free to sell them. This is the point at which tax is triggered. RSUs often vest in stages over several years rather than all at once.

How RSUs are taxed in the UK

On the date your shares vest, HMRC treats their market value as employment income — the same as a salary payment. Income tax and employee National Insurance are due on the value of the shares on that day.

In most cases, your employer collects this tax automatically through payroll (PAYE) by selling enough of the newly vested shares to cover it, and giving you the rest — this is often called "sell to cover." Some employers also pass on their own employer National Insurance cost to the employee through a separate agreement, which is worth checking in your plan documents, as it increases the amount deducted.

When your shares vest

The value of your shares on the vesting date is added to your other income for the tax year, and taxed at your normal rates (20%, 40% or 45%, depending on your total income).

Because this amount is added on top of your salary, a vesting event can push your total income into a higher tax band. It can also matter if your income crosses £100,000, as this is the point at which your tax-free personal allowance starts to be gradually withdrawn — meaning income between £100,000 and £125,140 can effectively be taxed at a higher rate than the standard higher rate.

When you sell the shares

Once your RSUs have vested, the market value at that point becomes the starting point for calculating any future capital gain.

If you sell immediately at approximately the vesting price, there will generally be little or no CGT.

If you keep the shares and their value rises before you sell, that increase is a capital gain and CGT applies to it. Only the growth since vesting is taxed — the vesting-date value is used as the starting point. Any gain above the annual tax-free allowance (£3,000) is taxed at 18% (basic rate) or 24% (higher and additional rate).

Tax planning opportunities

A number of options can affect the tax due on RSUs, depending on your circumstances — for example, pension contributions, salary sacrifice, the timing of vesting, reinvesting via an ISA, or transferring shares to a spouse or civil partner. Each works differently and has its own tax effect, and not all will apply to your situation. We can talk you through which of these, if any, are relevant to you.

What this means for you

• Tax does not arise on RSUs until they vest; the grant of RSUs itself does not create a tax liability.
• Because vested RSUs count as income, a large vesting event in one tax year can affect your overall tax position for that year, including whether you cross the £100,000 threshold.
• If you keep shares after they vest, any future rise in value creates a separate Capital Gains Tax liability when you eventually sell — this is in addition to the income tax already paid at vesting.
• There are ways to plan around this, but the right approach depends on your income, your wider finances, and your plans for the shares — this is exactly the sort of thing worth a conversation rather than a general guide.

Let's talk it through

Every RSU package and every client's tax position is different, so the detail that matters most is usually specific to you — how your vesting schedule lines up with your income, whether any of the planning options above could help, and how to make sure everything is reported correctly on your Self Assessment return.

If you have RSUs vesting this year, or you are not sure how they will affect your tax position, get in touch and we can go through it together. As always, we are not able to advise on investment decisions such as whether to sell or hold shares — for that, we'd recommend speaking to a financial adviser.