UK Tax on RSUs + Stock Options Guide 2026/27

RSU (Restricted Stock Unit): promise from employer to deliver shares at future vesting date, conditional on continued employment + performance. UK tax treatment: (1) Grant date: no tax. Just a contractual right. (2) Vesting date: full PAYE + NI on market value of shares delivered. Section 426 ITEPA 2003. (3) Sale date (later): CGT on appreciation from vesting price to sale price. Vesting tax mechanism: (a) Employer reports vesting through PAYE. (b) Shares treated as income at market value. (c) Employee + Employer NI applied: 8% / 2% employee + 15% employer. (d) Income tax at marginal rate: 20% / 40% / 45%. Sell-to-cover: most schemes sell portion of shares at vesting to cover tax. Net shares delivered to employee. Worked example - 1,000 RSUs vest at £50 / share, higher-rate employee: Vesting value: £50,000. Income tax 40%: £20,000. Employee NI 2%: £1,000 (assume above UEL). Employer NI 15%: £7,500 (paid by company - some employers pass cost via reduced grant). Net to employee (PAYE): £29,000 worth. Typically sell ~480 shares to cover, keep ~520 shares net.

Section 222 ITEPA 2003: timing rules for share-based earnings + "notional payment" recovery. "Make good" framework: (1) PAYE due on RSU vesting: employer reports through RTI in payroll period of vesting. (2) Employee must "make good" the income tax to employer within 90 days OF END OF TAX YEAR in which vesting occurred (typically by ~5 July following 5 April year-end). (3) Common methods: (a) Sell-to-cover: portion of shares sold to fund tax. (b) Cash deduction from salary: deducted from regular payroll. (c) Net settlement: employer withholds shares equal to tax. (d) Direct cash payment to employer: employee writes cheque. (4) Failure to collect within 90 days: (a) Tax remains employer liability: Section 710 ITEPA 2003. (b) Employer payment treated as additional benefit: further BIK. (c) Gross-up: employer ends up paying ~twice as much. (5) RTI reporting: vesting reported in payroll period of vesting. For employee - what to check on payslip + P60: (a) Vesting reported as part of "Pay" figure. (b) PAYE tax matches expected. (c) NI deducted appropriately. (d) Annual total pay reflects all vestings. Self Assessment requirement: (a) RSU vestings push income above £100,000: SA likely required. (b) International element: e.g., US RSU vesting under US payroll then UK employee transition. SA needed. (c) Multiple employments same year: reconcile via SA.

After vesting, employee holds shares as ordinary investment. Disposal triggers CGT: (1) Base cost = market value at vesting: this is your "tax-paid" basis. (2) Gain = sale price - vesting price. (3) AEA £3,000: annual exempt amount. (4) CGT rates 18% / 24%: from 30 October 2024. (5) Section 104 pool: if multiple vestings of same company shares, average cost basis. Worked example - 100 vested shares at £50 (£5,000 base cost), sold 18 months later at £80: Sale proceeds: £8,000. Cost basis: £5,000. Gain: £3,000. AEA: £3,000. Taxable gain: £0. If gain larger: £3k absorbed. Excess taxed at 18% / 24%. Worked example with bigger gain - 500 vested shares at £50, sold at £150: Sale proceeds: £75,000. Cost basis: £25,000. Gain: £50,000. AEA: £3,000. Taxable: £47,000. If basic-rate band capacity: 18% × £47k = £8,460. If higher-rate: 24% × £47k = £11,280. Strategic considerations: (1) Hold long-term for capital appreciation: but concentration risk. (2) Sell immediately at vest: lock in current value, avoid concentration. (3) Spread sales across tax years: utilise AEA + manage band crossings. (4) Bed-and-Spouse: transfer to spouse, they sell using their AEA. (5) Pension contribution to absorb gain: marginal rate management.

UK employee + US employer / parent with US RSU: complex cross-border. Common scenarios: Scenario A - UK employee of UK subsidiary, US parent grants RSU: (a) UK taxation applies on vesting: PAYE + NI. (b) US tax may withhold: depends on US source rules. (c) FTCR applies: UK gives credit for US tax up to UK liability. Scenario B - UK transferee from US (had US RSU): (a) "Time apportionment" of vesting: between US + UK periods. (b) US portion taxed in US (or via FBAR). (c) UK portion taxed in UK. (d) Specialist tax adviser essential. Scenario C - US citizen UK resident (FBAR + FATCA): (a) US citizens taxed worldwide: even if UK resident. (b) Form 1040 + Form 8938: US filings required. (c) UK tax on RSU vest: also US tax. (d) Foreign Earned Income Exclusion (FEIE): limited applicability to RSU. (e) FTCR claimed in US for UK tax paid. Double taxation typical: net outcome depends on FTCR mechanics. UK SA reporting: (a) Foreign employer RSU vesting: SA101 + SA106 (foreign). (b) Schedule of UK + foreign tax paid. (c) FTCR claim limited to UK tax on same income. Worked example - UK employee, US parent grants 1,000 RSUs vesting at $100 (£80): UK PAYE on £80,000: 40% + 2% = £33,600. US WHT (typical) 25% × $100,000 = $25,000 (~£20,000): withheld by US. FTCR: UK gives credit for £20,000 US tax against £33,600 UK tax. Net UK tax: £33,600 - £20,000 = £13,600. Plus US tax paid: £20,000. Combined: £33,600 - matches UK liability. No double taxation. Specialist Big 4 international tax adviser: £3-15k typical fee. Significant savings + compliance.

Stock options different from RSUs: option = right to buy share at strike price. RSU = right to receive share for free. UK option schemes: (1) EMI (Enterprise Management Incentive): small companies. £250k limit / employee. £3m company cap. Tax treatment: (a) Grant: no tax. (b) Exercise: no income tax (if at market value at grant). (c) Sale: CGT only. BADR 10% / 18% possible. HUGE tax advantage. (2) CSOP (Company Share Option Plan): larger companies. £60k / employee. Tax treatment: similar to EMI - no IT at exercise if held 3 years + at market value. (3) SAYE (Save As You Earn): all-employee, monthly savings, discount up to 20%. CGT at sale only. (4) SIP (Share Incentive Plan): free + partnership + matching + dividend shares. Tax-free if held 5 years. (5) Unapproved options: no HMRC tax advantage. Tax treatment: (a) Grant: no tax (typically). (b) Exercise: full PAYE + NI on (market value - strike price). Same as RSU. (c) Sale: CGT on further appreciation. (6) International options (US ISO + NSO): UK tax treatment varies + complex. ISO typically treated as unapproved in UK. Worked example - EMI option 1,000 shares at £1 strike, vesting at £10: Exercise cost: £1,000. Shares worth: £10,000. Income tax at exercise: £0 (EMI advantage). Sale at £20 / share: £20,000 proceeds. Gain: £20,000 - £1,000 = £19,000. CGT BADR 18%: £19,000 × 18% = £3,420. vs RSU equivalent income tax: would have been £4,000+ income tax at exercise + further CGT. EMI saves significantly.

Year 1 to vest - strategic planning: (1) Estimate vesting value: shares × forecast price. (2) Project tax impact: PAYE + NI hit + push into higher band. (3) Pension contribution planning: increase contributions in vesting year to bring adjusted income down. (4) Salary sacrifice into pension: reduces gross + Employer NI. (5) Charitable donations: higher-rate Gift Aid relief. (6) Marriage Allowance utilisation: if spouse not earning. (7) Spread vestings across tax years: if multi-year cliff. (8) Asset diversification planning: post-vest concentration risk. At vest - decisions: (9) Sell-to-cover vs cash payment: cash preserves more shares but requires liquid funds. (10) Net settlement preference: employer withholds shares = no cash needed. (11) Sell immediately for risk management: lock in current value, deploy elsewhere. (12) Hold for CGT optimisation: if 18% CGT preferred to higher income tax bracket later. (13) Plan for £100k+ income: PA taper. SA filing. Post-vest - portfolio management: (14) Spread sales across tax years: AEA × multiple years. (15) ISA wrapper for proceeds: £20k / year tax-free. (16) Pension contributions from proceeds: longer-term tax-free growth. (17) Diversification: avoid >10% portfolio in single stock. (18) Spouse transfer pre-sale: utilise spouse AEA + band. (19) Bed-and-ISA: sell + immediately repurchase in ISA = tax-free thereafter. (20) Charitable shares donation: 100% income tax + CGT relief on listed shares to UK charity. Worked example - £50k RSU vesting, higher-rate: Tax + NI on vesting: ~£21k. Increased pension contribution that year £10k: (a) Saves £4k higher-rate tax. (b) Builds retirement wealth. (c) Net cost £6k. Strategic optimisation: tax-aware income management.

Some employers shift Employer NI cost (15%) to employees: NIC Settlement Agreement. How it works: (1) Standard treatment: employer pays Employer NI 15% on RSU vesting. (2) NSA election: employee elects to take Employer NI burden on themselves. (3) Employee pays 15% additional NI: reduces net shares received. (4) BUT - the 15% is then deductible from income for income tax purposes. (5) Net effect: depends on marginal rate. Worked example without NSA - £50,000 vesting, higher-rate: Income tax 40%: £20,000. Employee NI 2%: £1,000. Employer NI 15% (paid by company): £7,500. Total cost to employer: £57,500. Worked example WITH NSA: Vesting value remains £50,000. Employer NI 15% transferred to employee: £7,500. Effective grossed-up value of award: £50,000 / 1.15 = £43,478. (Equivalent vesting after NIC transfer). Income tax on £43,478 × 40%: £17,391. Employee NI 2%: £870. Employer NI now £0 (transferred to employee). Employee net: £43,478 - £17,391 - £870 - £7,500 = £17,717. vs without NSA: £50,000 - £20,000 - £1,000 = £29,000. NSA appears worse for employee BUT: (a) Employer typically grosses up the original grant to compensate. (b) Employee benefits via larger initial grant. (c) Without NSA, employer absorbs cost - may reduce future grants. NSA election is one-way: cannot be reversed. Strategic decision: depends on employer's grant policy + employee's tax circumstances. Most large tech companies (Google, Meta, Amazon) DO require NSA: standard practice.

Leaving UK with unvested RSUs - complex tax treatment. Apportionment rules: (1) "Workdays in UK" apportionment: vesting value × (UK workdays from grant to vest / total workdays). (2) Tax UK on UK-attributable portion. (3) Vest country may also tax: typically with FTCR mechanism. Worked example - grant January 2024 vesting January 2027 (3 years). UK employee Jan 2024 - June 2025 (18 months), US Jan 2026 - vest (12 months left = 18 months total US): UK workdays: 18 months × 22 days = 396 days. Total workdays: 36 months × 22 = 792 days. UK proportion: 396 / 792 = 50%. Vesting value $100k = £80k: UK taxable portion: 50% × £80k = £40k. UK tax on £40k: ~£17k. US tax on remaining 50% + potentially worldwide for US citizens: separate calculation. FTCR + treaty relief: prevent double taxation. SA filing required: cross-border employment complexity. Specialist Big 4 / international tax adviser essential: £5-25k fees. Significantly improved outcomes. P85 if leaving UK: notify HMRC + claim refund on unused UK PA + potentially flag RSU treatment. Tax residence test (SRT): confirms residence status + treaty allocation rules. Common pitfall: leaving UK + assuming no UK tax on subsequent vest. WRONG - apportionment applies. HMRC scrutinises via former-employer reporting + intelligence-share.

Comprehensive RSU strategy checklist: BEFORE GRANT: (1) Understand scheme type: EMI / CSOP / SAYE / SIP / unapproved / RSU. (2) Tax treatment per scheme: significant differences. (3) NSA agreement requirements: most large companies require. (4) Performance vs time vesting: affects timing. (5) Forfeiture conditions: leaving employer, performance failure. POST-GRANT, PRE-VEST: (6) Annual valuation monitoring: project tax at vest. (7) Pension contribution planning: increase in vest year. (8) Salary sacrifice optimisation. (9) ISA + GIA preparation: deploy proceeds. (10) Tax adviser engagement for £100k+ vests: typical £1-5k engagement. AT VEST: (11) Settlement method choice: sell-to-cover vs cash vs net. (12) Immediate diversification consideration: concentration risk. (13) Tax position review: PA taper, higher-rate, SA required. (14) Charitable donations from proceeds: Gift Aid relief. POST-VEST: (15) Diversify portfolio: 10% max single-stock typical guideline. (16) ISA contribution maximisation. (17) Pension contributions from proceeds. (18) Spouse transfer pre-sale: utilise spouse AEA + band. (19) Bed-and-ISA strategy: tax-free thereafter. (20) Stagger sales across tax years: AEA × multiple years. (21) SA filing for foreign / complex situations. (22) Charitable share donation: full income + CGT relief. INTERNATIONAL: (23) US citizen UK resident: FATCA + FBAR + US 1040. (24) Leaving UK: P85 + apportionment. (25) Returning to UK: residence test + treaty. (26) FTCR maintenance for cross-border: documentation. (27) Specialist Big 4 / international firm: £3-25k typical. (28) Annual review with adviser: portfolio + tax + life events. Common mistakes avoided: (a) Holding too long for "tax efficiency": stock-specific risk dominates. (b) Forgetting Employer NI burden under NSA: significant tax hit. (c) Not filing SA when required: penalty + interest. (d) Double-taxation without FTCR claim: thousands lost. (e) Concentration risk: employer fortune tied to stock. Lifetime tax savings via good planning: 5-15% of total RSU value for high-net-worth tech employees.