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Understanding Restricted Stock Units (RSUs):

RSUs, or restricted stock units, are a common way for tech companies like Microsoft, Meta, Amazon, Intel, and Google to pay their employees. Instead of giving workers cash right away, employers promise to give them company shares in the future.

This makes RSUs a big part of employees’ long-term wages and wealth. To get the most out of RSUs, you need to know how they’re structured, how they’re treated, and how to lower your tax obligations.

Key Concepts:

  • Getting RSUs
  • How to Tax RSUs in the UK
  • Ways to keep RSU taxes as low as possible
  • Capital Gains Tax (CGT) on RSUs

Whether you’re new to RSUs or already have them, these ideas will help you make the best decisions about your money.

Getting RSUs:

RSUs are given to employees at important times in their careers, like when they are hired, when they pass their yearly performance review, or when the company meets its goals. When compared to Company Share Schemes, RSUs have set dates, such as the “grant date” (when the RSUs are given out) and the “vesting date” (when the shares become yours and can be sold). Most of the time, vesting happens over a few years, not all at once.

For example, if you join Microsoft in 2024 and are given 300 RSUs, you might get 25% of these units every year for four years.

You might also get a new grant every year, which would make the vesting plans overlap. This system, called “cliff vesting,” means that you’ll get shares in stages over time, which increases your chances of getting rich even more.

How to Tax RSUs in the UK:

When RSUs are granted, they are not taxed. But when they vest, they are. When RSUs become vested, they are handled like income. This means you’ll have to pay income tax, National Insurance contributions (NICs), and possibly company NICs as well, if these costs are passed on to you.

For example, if you make £200,000 a year in pay and £75,000 in RSUs, you might only get £34,058 after taxes, based on how you file your taxes. Usually, taxes are taken out before you get the shares, so you only get the net amount after taxes are taken out.

RSUs ReceivedAmount
RSU Value at Vesting£75,000
Less: Employer NIC (13.80%)*-£10,350
Less: Income Tax (45% after Employers NIC)*-£29,092
Less: Employee NIC (2.00%)*-£1,500
RSU Value after all taxes£34,058

Ways to keep RSU taxes as low as possible

Making payments to a pension plan is a good way to lower the taxes you owe on RSUs. You can lower your *adjusted net income* by putting money into your pension. This could lower your total tax bill and even your tax rate.

The slow decrease of the personal limit can lead to what is known as the “60% tax trap” for people who make between £100,000 and £125,140 a year. If you put more money into your pension, your taxed income will drop below this level. This will help you escape the high 60% rate and save more for retirement. It’s important to know that the most you can put into a pension each year and still get tax breaks is £60,000.

An example of this would be putting £25,140 into your pension if your total income from pay and RSUs is £125,140. This would bring your taxable income down to £100,000, which would save you about £4,335 in taxes and National Insurance.

RSUs ReceivedNo Pension ContributionPension Contribution
RSU value£25,140£25,140
Less: Employer NIC (13.80%)-£3,469-£3,469
Less: Income Tax (60% vs 40% after Employers NIC)-£13,003-£8,668
Less: Employee NIC (2.00%)-£503-£503
RSU Value after all taxes£8,165£12,500

Capital Gains Tax (CGT) implications on RSUs

If the value of the shares goes up between when your RSUs vest and when you sell them, you may have to pay capital gains tax (CGT). If you sell the shares right after they vest, however, you will only have to pay the initial vesting tax.

If you make more than the yearly exemption, which for the 2024–25 tax year is £3,000, you have to pay capital gains tax. For earnings over this amount, the CGT rate is 10% for basic-rate taxpayers and 20% for higher-rate taxpayers. This is a lot less than the income tax rate, which can be as high as 45%.

 Getting the best capital gains tax on RSUs

 To pay the least amount of capital gains tax on your RSUs, think about these options:

 1. Sell RSUs as soon as they vest

You can avoid taxed gains by selling the shares as soon as they become yours. You can buy back the shares in a tax-advantaged account, like an ISA or SIPP, where future growth is tax-free if you want to keep control.

 2. Give your spouse your RSUs

With the *inter-spousal transfer exemption*, you can give your husband/wife shares of your business without having to pay taxes on them. You and your partner can each use their own CGT limits, which means you can sell twice as much before being taxed.

Conclusion

Selling RSUs as soon as they vest is the easiest way for most people to avoid paying capital gains tax and keep their investments broad. If you hold on to RSUs, you may become more exposed to your company’s stock, which may be more risky than you want to take. If you know about RSU taxes, the benefits of pension contributions, and capital gains methods, you can make smart choices that will help your taxes and your long-term financial health.

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