RSUs and US Equity Compensation for UK Taxpayers: A Complete Planning Guide

Restricted Stock Units granted by US-listed employers are a major component of executive compensation packages in the technology, financial services, and professional services sectors. For employees who are UK taxpayers — whether UK nationals working for US companies, or US citizens posted to London — the tax treatment of RSUs involves UK income tax, National Insurance Contributions, potential US tax, and complex sourcing rules that can create double taxation exposure. Getting this wrong is expensive; getting it right requires early planning.

How RSUs Differ from Share Options

An RSU is not an option. The employee does not pay an exercise price. Instead, the employer grants the employee the right to receive shares at a future date, provided vesting conditions (usually continued employment over a period) are met. At vesting, the employee receives actual shares (or, in some US plans, cash equivalent).

This distinction is critical for UK tax purposes: UK income tax is triggered at vest, not at grant. There is no taxable event when RSUs are granted.

UK Tax at Vesting

When RSUs vest, the employee is treated as having received employment income equal to the market value of the shares on the vesting date. This amount is subject to:

• Income tax at the employee's marginal rate (20%, 40%, or 45% depending on total income).
• Employee National Insurance Contributions (NIC) — Class 1, currently 8% on earnings between the Primary Threshold and the Upper Earnings Limit, and 2% above the UEL.
• Employer NIC — Class 1 employer contributions at 15% on the vest value (as at 2026–27 rates). Many RSU plan rules pass employer NIC to the employee through a tax election, increasing the employee's effective cost.

The employing company is required to operate PAYE on the income at vest and to account for NIC. For RSUs in US-listed shares, the employer will typically sell a portion of the vesting shares ("sell-to-cover") to fund the withholding obligation and deliver net shares to the employee.

Example: 1,000 RSUs vest. Share price on vest date: £50. Total income at vest: £50,000. At 45% income tax plus employee NIC: approximate liability £22,500–£25,000. Employer will sell ~450 shares to fund withholding; employee receives approximately 550 shares.

The Section 431 Election Question

HMRC's employment-related securities rules (Part 7 ITEPA 2003) normally apply a "restricted securities" framework to shares that carry restrictions — for example, forfeiture conditions before vesting. However, RSUs are typically treated as "securities options" rather than "restricted securities" under UK law, because the employee does not hold actual shares during the vesting period.

The s.431 ITEPA election (jointly made by employer and employee within 14 days of acquisition) disapplies the restricted securities rules, ensuring that the entire gain is taxed at income tax rates at vest rather than across a series of "chargeable events." For RSUs, where vesting is the defining event, a s.431 election is generally unnecessary — but some employers include it as a precaution or because the plan structure introduces restrictions on the shares delivered at vest. Employees should confirm with their employer whether a s.431 election is required and, if so, execute it within the strict deadline.

CGT on Sale

After vesting, the employee holds actual shares. Any subsequent sale generates a capital gain. The gain is calculated as:

Proceeds minus the market value at vest (which was already charged to income tax).

There is no double taxation on the vest value — the amount taxed as income becomes the CGT base cost. The gain (uplift from vest value to sale proceeds) is a capital gain, taxable at 18% (basic rate) or 24% (higher/additional rate) after deducting the annual CGT exempt amount (£3,000 for 2026–27).

Employees may shelter vested RSU shares within an ISA using a "bed and ISA" process — selling the shares and immediately repurchasing them inside the ISA wrapper, within the annual ISA subscription limit (£20,000 for 2026/27) — sheltering future gains and dividends from UK tax. Note that the 90-day direct, in-specie transfer route applies only to shares from HMRC tax-advantaged SAYE and SIP schemes, not to ordinary RSU shares; the sale step in a bed-and-ISA can itself be a CGT disposal.

US Citizens in the UK: The Overlap Problem

US citizens are taxed by the United States on their worldwide income regardless of where they live. A US citizen living and working in London will be subject to both:

• UK income tax and NIC on RSU vest value (as described above).
• US Federal income tax on the same vest value as ordinary income (subject to foreign tax credits).

The US-UK double tax treaty addresses this overlap in part. A US citizen resident in the UK can generally claim a foreign tax credit in the US for UK income tax paid on the vest value. However:

• NIC paid in the UK is generally not creditable against US Federal income tax (NIC is not an "income tax" for US treaty purposes).
• The foreign tax credit may not fully offset US tax if the US tax rate exceeds the UK rate, or if the employee has insufficient US "regular tax" liability to absorb the credit.
• FATCA (Foreign Account Tax Compliance Act) requires US citizens to report foreign financial accounts and foreign assets above specified thresholds. RSU shares held in a UK brokerage account are reportable.

US citizens holding RSUs should work with an adviser who understands both UK and US tax to model the effective combined rate on vesting and sale.

FICA and NIC: Double Social Security Contributions

US employers operating in the UK must determine whether an employee is subject to US FICA (Social Security and Medicare taxes) or UK NIC. Under the US-UK Social Security Totalization Agreement, an employee should generally be subject to only one country's social security system, based on where they are posted and the duration of the posting.

However, the application of the Totalization Agreement to RSU vest income is not always straightforward:

• If the employee is working in the UK under UK NIC, the UK system applies. The employer accounts for employer NIC on RSU vest income.
• If the employee is a US-based secondee in the UK for a period covered by a US Certificate of Coverage issued under the Totalization Agreement, FICA applies and UK NIC does not.

Where the employer fails to apply the agreement correctly, double social security contributions can arise. Employees on cross-border assignments should ensure their employer has considered the Totalization Agreement and, if applicable, obtained a Certificate of Coverage.

Sourcing Rules for Mobile Employees

For employees who worked in multiple jurisdictions during the RSU vesting period, both the UK and the US apply sourcing rules to determine the taxable element in each country.

UK sourcing: UK income tax applies to the proportion of vest income attributable to UK working days during the vesting period. The formula is:

UK proportion = (UK working days during vesting period) ÷ (Total working days during vesting period) × Vest value

This means that an employee who spent half the RSU vesting period in the US and half in the UK would expect approximately half the vest income to be subject to UK income tax. The other half would be exempt from UK income tax (although it may remain subject to US tax for US citizens, or to the foreign country's tax for non-US persons).

US sourcing (for US citizens): The IRS taxes the full vest value, with a foreign tax credit for taxes paid in the UK on the UK-sourced portion.

Practical implications:

• Employees moving to the UK mid-vest period should disclose their full working day history to the UK employer so PAYE can be applied to the correct UK-source proportion only.
• Employees moving out of the UK during a vest period should ensure that vest income after their UK departure date is correctly excluded from PAYE — or reclaim overpaid tax via self-assessment.
• Self-assessment returns must be filed if the sourcing analysis results in a different liability than that withheld under PAYE.

Reporting Obligations

UK employees with RSU income must file a UK self-assessment tax return where:

• Total income (including RSU vest income) exceeds £100,000, or
• There is an employer-unadjusted tax position (e.g., PAYE withholding incorrectly computed), or
• UK-resident employees receive RSU vest income from a non-UK employer who does not operate PAYE.

The Employment Related Securities annual return (Form 42 / ERS annual return) must be filed by the employer with HMRC each year, reporting all RSU vests. Employees who have moved internationally during the year may need to review whether their employer has correctly reported the UK-source proportion.

Planning Recommendations

1. Review vest dates and income tax position annually: Large vest events should be modelled against income for the tax year to identify opportunities to accelerate or defer other income.
2. Consider ISA contributions from vest proceeds: Use a bed-and-ISA (sell and repurchase inside the ISA, within the £20,000 annual subscription limit) to shelter future gains and dividends. RSU shares cannot be transferred into an ISA in specie — the 90-day direct-transfer route is limited to SAYE and SIP scheme shares.
3. Document your working day history: HMRC may request evidence of working days in the UK during the vest period; keep a contemporaneous diary or travel log.
4. Coordinate with US tax adviser if you are a US citizen or US person: The combined tax position can be significantly higher than either jurisdiction's rate alone without proper coordination.
5. Challenge PAYE withholding if incorrectly applied: If your employer has withheld too much (e.g., by applying PAYE to the full vest without sourcing), claim the overpayment through self-assessment.

Compliance Caveat

The UK tax treatment of RSUs is set out in Part 7 ITEPA 2003 and is subject to legislative change. US tax treatment and FATCA obligations are US Federal law and may be amended by Congress. NIC rates, income tax rates, CGT rates, and the ISA rules applicable to share transfers are all subject to change in annual Finance Acts. This guide reflects the position as at June 2026. Employees with significant equity compensation should obtain specialist tax advice in every jurisdiction relevant to their situation.

How Global Investments Can Help

Global Investments works with executives and employees who receive US equity compensation — whether as UK residents employed by US companies, or as international movers navigating complex cross-border tax positions. Our advisers help model vest income, coordinate with US tax counsel, structure the ongoing investment of vest proceeds, and ensure that self-assessment obligations are met accurately. Contact us to arrange an initial review of your equity award portfolio.