How Restricted Stock Units Are Taxed in the UK

An RSU is a promise to deliver shares once conditions are met, usually continued employment over a vesting schedule. Before vesting you own nothing and there is nothing to tax.

At vest, the market value of the shares delivered is employment income. Income tax and National Insurance are due on the full value, and because the shares are typically readily convertible assets, your employer must operate PAYE. The vest value is added to your other earnings for the year, so a large tranche can move you through several tax bands at once.

For 2026/27 the rates for the rest of the UK are 20% between £12,571 and £50,270, 40% between £50,271 and £125,140, and 45% above £125,140.

Most employers operate sell-to-cover: enough shares are sold at vest to fund the tax and the balance is delivered.

The withholding is not always calculated at your true marginal rate. Where it is withheld at a flat rate below the rate you actually pay, the shortfall is yours to settle through Self Assessment — often many months later, on a bill nobody warned you about. The reverse also happens, with excess tax recoverable rather than refunded automatically.

Check what rate was applied rather than assuming the vest was settled in full.

This is where RSUs cause the most damage, because the vest value counts toward adjusted net income.

The personal allowance of £12,570 is reduced by £1 for every £2 of adjusted net income above £100,000, and is gone entirely at £125,140. A vest that carries income across that band therefore attracts an effective marginal rate far above the headline 40%, because the allowance is being withdrawn at the same time.

Our article on the £100,000 tax trap works through the arithmetic, and our article on adjusted net income explains precisely which items count — the figure that matters here, and not the same as salary.

This is distinct from a cash bonus in one important respect: a bonus can sometimes be deferred or sacrificed by agreement, while a vest date is fixed by the grant. Our article on bonuses pushing income above £100,000 covers the cash equivalent.

Once vested, the shares are simply shares you own. Your base cost for capital gains purposes is the market value at vest — the amount already taxed as income.

Sell immediately and there is usually little or no gain. Hold, and any growth above that base cost is a capital gain. For 2026/27 the annual exempt amount is £3,000, with gains on shares taxed at 18% within the basic rate band and 24% above it. Dividends received while holding are taxed at 10.75%, 35.75% or 39.35% depending on your band.

Holding is a decision, not a default. Continuing to hold employer shares concentrates your salary, your pension and your investments in one company — a risk our article on asset allocation covers.

A personal pension contribution reduces adjusted net income and can restore some or all of the tapered personal allowance, which is why vest years are often the years a larger contribution makes most sense. The annual allowance for 2026/27 is £60,000, subject to the taper above £200,000 threshold income and £260,000 adjusted income, and unused allowance from the previous three years may be available. Our articles on tax relief on pension contributions and the pension carry forward rule cover both.

Beyond that: spreading disposals across tax years to use more than one annual exempt amount, and transfers between spouses or civil partners, which are made on a no gain, no loss basis.

Treating the vest as an investment gain rather than earnings. Assuming sell-to-cover settled the liability in full. Forgetting that the vest counts toward adjusted net income. Holding shares by inertia. And overlooking that shares from overseas employers may bring additional reporting obligations.