How RSUs are taxed in the UK

Why is this so hard to find a clear answer to?

Most of what you’ll find online about RSU taxation is written for a US audience. The mechanics there are meaningfully different — different withholding rates, different stacking with state taxes, different rules around supplemental wages. Applied to a UK payslip, the US framing produces numbers that aren’t close to what you’ll actually receive.

The result is that people routinely accept job offers, compare grants, or plan around vests using gross figures that overstate what lands in their account by tens of thousands of pounds. The point of this guide is to make the UK picture explicit, with real numbers.

What actually happens, in plain English

There are four facts that do almost all the work:

• RSUs are not taxed when granted. The grant is a promise of future shares, conditional on you still being there at vest. HMRC treats it as nothing has happened yet.
• At vest, HMRC treats the shares as employment income. The full market value of the shares that vest counts as pay in that tax year, exactly like a cash bonus.
• PAYE is applied — income tax and National Insurance are deducted before the shares arrive. Your employer usually sells a portion of the vesting shares to cover the bill, a process commonly called “sell-to-cover.” The shares that hit your brokerage account are what’s left.
• The number of shares you receive is after withholding, not the full grant. A 400-share grant doesn’t mean 400 shares land in your account over the vesting period. It means up to 400 shares are sold or transferred, with the tax taken out of the proceeds first.

What does this look like with real numbers?

Take a fairly typical scenario for someone receiving equity in the UK:

After pension sacrifice, the salary HMRC sees is £62,100. That puts you in the higher-rate band before any RSU income lands. In Year 1, one quarter of the grant vests — 100 shares, worth £12,900.

Here’s what HMRC takes from that vest:

Of a £12,900 vest, you keep £5,547. Across four equal annual vests at the same salary, the picture is the same each year, so the headline £51,600 grant pays out as roughly £22,188 net over four years — about £29,412 of deductions in total.

Why is the rate so high — isn’t this person an “average rate” taxpayer?

This is the single most misunderstood part of RSU taxation. The average rate on £62,100 of salary is roughly 27% — but the rate that applies to the RSU isn’t the average. It’s the marginal rate: the rate on the next pound of income.

RSU income stacks on top of salary. Because the salary has already used up the personal allowance and filled the basic-rate band, every pound of RSU is taxed where the salary left off — in this case, the 40% higher-rate band. Add 2% NI (the salary has already crossed the NI upper limit), 9% Plan 2, and 6% postgraduate, and the marginal rate on the vest is 57%. That’s where the 43% retained figure comes from.

What else interacts with RSU income?

Once you treat the vest as employment income on top of salary, four interactions follow naturally:

• RSU income can push you into a higher band. A vest that would have been entirely basic-rate on its own can be partly or fully higher-rate because the salary underneath it has already used up the basic-rate space.
• Student loan repayments apply to RSU income too. Plan 2, postgraduate, and the rest are calculated on total income, so the vest pulls in 9% or 15% on top of tax and NI.
• A vest can push adjusted income across £100,000. That triggers the Personal Allowance taper — see the next section, because this one is expensive.
• Pension sacrifice reduces salary but not the RSU.Sacrificing into pension lowers the salary HMRC sees, which can lower the marginal band the RSU lands in — but the RSU itself can’t generally be sacrificed.

What’s the £100,000 trap, and could it apply to me?

Above £100,000 of adjusted income, the Personal Allowance is withdrawn by £1 for every £2 over the threshold, disappearing entirely at £125,140. The withdrawn allowance becomes taxable at 40%, which creates an effective marginal rate of 60% on income inside that band (before NI and student loan are added on top).

A worked example: if your salary is £95,000 and your Year 2 vest adds £15,000, your adjusted income crosses £100,000 and triggers the Personal Allowance taper — creating a 60% effective marginal rate on part of that vest. In that scenario, a £15,000 vest yields approximately £5,350 net — a retained rate of just 35.67%. This is the single most expensive threshold interaction for UK professionals with equity, and it’s the reason two people with identical grants but slightly different salaries can end up with noticeably different net outcomes.

What does this make possible?

Knowing the net value of a vest before you accept a grant means you can evaluate total compensation accurately — comparing one offer’s net equity against another’s, rather than comparing gross headline figures that conceal the deductions. It also means you can plan around vesting months: when a large vest is coming, you know roughly what cash will arrive, what won’t, and whether the vest crosses a threshold that changes the rate.