Introduction
Restricted Stock Units (RSUs) have gained widespread popularity as a form of employee incentive in recent years. These employee share option schemes are particularly prevalent in multinational tech corporations.
RSUs are granted to employees during significant milestones. Major tech giants such as Microsoft and Google commonly offer RSUs to new hires as part of their compensation package. These units may also be allocated annually or contingent on the company’s performance.
2 Key Dates
With RSUs, there are two key dates to remember: the grant date and the vesting date. The grant date is when the RSU is awarded. The vest date is when the RSU becomes available and can be sold.
How are RSUs taxed?
There is no tax to pay when RSUs are granted, rather you only pay tax on RSUs when they vest. The UK tax treatment for RSUs is like how your salary is taxed. When your RSUs vest, you will pay income tax and employee national insurance. You may also need to pay for employers’ national insurance. Employers can pay this themselves or transfer the liability to the employee.
In most circumstances, the tax will be paid before you receive the shares (i.e. you will receive the net amount after withholding taxes).
Here is an example –
David annual salary is £150,000 and received and vested RSUs worth £50,000 in 2023/24 tax year. David is higher rate taxpayer based on his annual salary, tax bracket of 45%, so he will pay the following –
- Tax of £22,500 (50,000 * 45%)
- NI employee of £1,000 (50,000 * 2%)
If David’s employer transfers the NI employer liability to David, the calculation will be slightly different. The NI employer due is £6,900 (50,000 * 13.8%), so for tax purposes, we can reduce the vested amount by the NI employer amount, so updated vested amount is £43,100. So, David will pay the following –
- Tax of £19,395 (43,100 * 45%)
- NI Employee of £1,000 (50,000 * 2%)
- NI employer of £6,900 (50,000 * 13.8%)
Do I pay capital gains tax on RSUs?
Once RSUs vest, you can sell the shares immediately. There will be no additional taxes to pay if you do this. However, if you decide to hold onto the shares, you may pay capital gains on RSUs.
If the value of the shares increases between when they vest and when you sell them, you will have made a capital gain. Depending on how significant the gain is, you may need to pay capital gains tax.
