What are RSUs?
Restricted Stock Units (RSUs) are a form of equity compensation where your employer promises to give you shares at a future date — typically once a time-based vesting condition is met. Until they vest, RSUs are simply a contractual promise; you don't own the shares and have no voting or dividend rights.
Most tech companies use a four-year vesting schedule with a one-year cliff: 25% of your grant vests after 12 months, and the remainder vests quarterly or monthly over the following three years. The key tax event happens at each vesting date, not when the RSUs are granted.
How RSUs are taxed at vesting
When your RSUs vest, the market value of the shares on that date is treated as employment income. Your employer reports it through PAYE, so Income Tax and employee National Insurance are deducted just like salary. You'll usually see the income and deductions on your payslip in the month of vesting.
To cover the tax, most employers use a “sell to cover” arrangement — they sell enough of your newly vested shares to pay the Income Tax and NI due, and release the remaining shares to your brokerage account.
Worked example
- 100 shares vest at a market price of £20 each
- Taxable employment income: £2,000
- Income Tax at 40%: £800
- Employee NI at 2%: £40
- Total withheld: £840 (roughly 42 shares sold to cover)
- You receive: ~58 shares in your brokerage account
Employer NIC and S431 elections
Your employer also owes employer National Insurance at 15% on the vesting income. Some employment contracts or RSU agreements require this cost to be passed on to you — meaning even more shares are sold at vesting. Check your RSU plan documents or ask your payroll team whether employer NIC is deducted from your shares.
Section 431 election: If your shares carry any remaining restrictions after vesting (e.g., a holding period), a joint S431 election with your employer can lock in the taxable value at vesting and avoid being taxed again when restrictions lift. This is an advanced area — seek specialist advice if your plan includes post-vest restrictions.
After vesting: CGT base cost
Once your shares have vested and the employment income tax has been paid, you own the shares outright. Your base cost for Capital Gains Tax purposes is the market value on the vesting date — the same amount that was already taxed as income.
If you sell the shares later at a higher price, the gain above your base cost is subject to CGT. For the 2025/26 tax year, the annual CGT exemption is £3,000 and rates are 18% (basic rate) or 24% (higher rate) for most assets.
Example: Your shares vested at £20 each (your base cost). You sell a year later at £28. The £8 gain per share is subject to CGT — not Income Tax, because the £20 was already taxed at vesting.
Impact on your adjusted net income
RSU vesting income is added to your salary when calculating your adjusted net income (ANI). A large vesting event can push you over key thresholds, triggering:
- Loss of Personal Allowance — above £100,000 ANI you lose £1 of allowance for every £2 of income, creating an effective 60% marginal tax rate
- Loss of Tax-Free Childcare — eligibility is capped at £100,000 ANI per parent
- High Income Child Benefit Charge — tapering begins above £60,000 ANI
If your total income (salary + RSU vesting) approaches these thresholds, consider salary sacrifice into your pension to bring your ANI back below £100,000. You can also use our Capital Gains Calculator to model the CGT side when you eventually sell.
Model the tax impact
Add your RSU vesting income to our salary calculator to see exactly how it affects your take-home pay, tax bands, and adjusted net income.
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