Answers · UK 2025/26
How are deferred share bonuses taxed in the UK?
A deferred share bonus is a cash bonus awarded as shares or share options, vesting after a performance or time-based period. When shares vest (are received), Income Tax and National Insurance are charged on the market value of shares on the vesting date as employment income. Capital Gains Tax applies to any further growth after vesting. The employer must operate PAYE on the vesting date.
Full answer
Deferred share bonuses are commonly used by banks, financial services firms, and large corporates to align employee incentives with long-term performance and to comply with regulatory requirements on deferring variable remuneration. **Typical structure:** - Bonus is awarded but not immediately paid in cash - Instead, shares or share units are granted, vesting after 1-5 years (subject to continued employment and sometimes performance conditions) - On vesting, the employee receives the shares (or their cash equivalent) **Tax at vesting:** The market value of the shares on the vesting date is treated as employment income: - Income Tax at the marginal rate (20%, 40%, or 45%) through PAYE - Employee National Insurance at 8% (up to £50,270) or 2% above - Employer National Insurance at 13.8% (the employer pays this separately; may be contractually shifted to the employee in some arrangements) The employer must operate PAYE on the vesting date and account for both income tax and NI to HMRC. **Tax after vesting (on sale):** Once the shares vest, the employee owns them. Any subsequent gain from the vesting-date market value to the eventual sale price is a capital gain: - CGT at 18% (basic rate) or 24% (higher rate) in 2026/27 - After deducting the £3,000 Annual Exempt Amount **Employer contribution (anti-avoidance):** If an employer makes a payment into an Employee Benefit Trust (EBT) to fund deferred bonuses, the employer gets a CT deduction when the employees actually receive their shares/cash -- not when the contribution is made (Finance Act 2011 restriction). **Forfeiture:** If shares are forfeited (e.g., employee leaves before vesting), no tax arises. If shares have already vested and are then clawed back (malus or clawback provisions), a refund/credit of the original PAYE tax may be available. **Non-tax-advantaged (unapproved) vs approved schemes:** Deferred bonus arrangements are typically non-tax-advantaged. Approved schemes such as CSOP, EMI, and SAYE have their own specific tax treatment.
Try the calculator
This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.