RSU and Share Award Vesting: Income Tax, CGT and NI Rules for 2026/27

Understanding Share Awards and RSUs

Restricted Stock Units (RSUs) and other share award arrangements are increasingly common, particularly in the technology sector and for senior employees. The basic principle is straightforward: an employer grants an employee the right to receive shares at a future date, provided certain conditions are met (typically continued employment and sometimes performance targets).

When those conditions are fulfilled and the shares are actually delivered, this is called vesting. The tax event occurs at vesting -- not when the award is granted.

Understanding this distinction is fundamental to managing your tax position. Many employees are surprised to find that a substantial income tax and NI bill arises at vesting, even though they have not sold any shares and have no cash to pay the tax from (unless their employer withholds shares to cover the liability).

Tax at Vesting: The Employment Income Charge

At vesting, the market value of the shares you receive is treated as employment income under Chapter 2 of Part 7 of the Income Tax (Earnings and Pensions) Act 2003 (the "acquisition of securities" rules).

This amount is added to your other employment income for the year and taxed at your marginal rate:

• 20% if you are a basic rate taxpayer (income up to GBP50,270 including the vesting gain)
• 40% if the vesting gain takes you or keeps you in the higher rate band (GBP50,271 to GBP125,140)
• 45% if you are an additional rate taxpayer (income above GBP125,140)

The vesting gain can also have knock-on effects on your adjusted net income, potentially:

• Triggering or increasing the High Income Child Benefit Charge (above GBP60,000)
• Reducing your Personal Allowance (above GBP100,000)
• Increasing your pension Annual Allowance taper exposure

National Insurance at Vesting

Employee NI is also due at vesting. The rates for 2026/27 are:

• 8% on employment income between GBP12,570 and GBP50,270
• 2% on employment income above GBP50,270

If the vesting value pushes your total employment income well above GBP50,270, the NI cost on the vesting gain is largely at the 2% rate -- which is materially lower than the income tax rate.

Example: Alex earns GBP80,000 salary and receives GBP40,000 of RSUs vesting in June 2026. His total employment income for 2026/27 is GBP120,000.

Income tax on the RSU gain (all at 40% as he is already in higher rate): GBP16,000 NI on the RSU gain (all at 2% as he is already above GBP50,270): GBP800

Total deductions at vesting: GBP16,800 (plus employer NI -- see below)

How PAYE Works for RSU Vesting

Employers are required to operate PAYE on share income at vesting. In practice there are two common approaches:

Sell-to-cover: The employer sells enough of the vesting shares to fund the income tax, employee NI and employer NI. You receive the remaining shares. This is the most common approach in practice.

Net settlement: The employer withholds a proportion of the shares (typically calculated to cover the tax) and delivers only the net number to you. The withheld shares are either cancelled or used to fund the tax payment.

In either case, the gross vesting value appears on your P60 or payslip as employment income, and the tax and NI deductions are shown alongside it.

Employer NI at Vesting

Employer Class 1 NI is payable by the company at 13.8% on the taxable value of the shares at vesting. For the example above (GBP40,000 RSU gain), the employer NI is GBP5,520.

This is a direct cost to the employer and explains why companies sometimes try to pass it to the employee through a joint election under Schedule 1 ITEPA 2003. This is a formal HMRC-approved agreement that transfers the employer NI liability to the employee.

If you sign such a joint election, your effective tax cost at vesting increases by 13.8% of the vesting gain. In return, you receive a corresponding income tax deduction for the NI you pay on the employer's behalf -- so the net cost is not as severe as it initially appears.

Joint election example: RSU gain GBP40,000. Employer NI transferred: GBP5,520. Tax deduction for employee: GBP5,520 at 40% = GBP2,208. Net additional cost to employee: GBP5,520 - GBP2,208 = GBP3,312.

Not all employers use joint elections. If one is proposed, it will be included in your employment contract or share award agreement and you should consider it carefully before signing.

Tax on Disposal: Capital Gains Tax

Once you hold the shares following vesting, any further increase in value between the vesting date and the eventual sale date is subject to Capital Gains Tax (CGT) -- not income tax.

For 2026/27:

• Annual exempt amount: GBP3,000 (gains below this are tax-free)
• CGT rate on shares: 10% for basic rate taxpayers; 20% for higher and additional rate taxpayers
• The rate depends on your total income including gains in the year of disposal

Your base cost for CGT purposes is the market value of the shares at vesting (i.e., the value on which you already paid income tax). You do not pay tax twice on the same gain.

Example: The RSUs in the example above vest at GBP10 per share (GBP40,000 for 4,000 shares). Two years later, Alex sells all 4,000 shares at GBP14 per share (GBP56,000 total).

CGT gain: GBP56,000 - GBP40,000 = GBP16,000 Less annual exempt amount: GBP3,000 Taxable gain: GBP13,000 CGT payable (Alex is a higher rate taxpayer): GBP13,000 x 20% = GBP2,600

Alex must report this on a self assessment return. The CGT reporting and payment deadline is 31 January following the end of the tax year in which the disposal occurs.

Shares in a Listed Company vs Private Company

For listed company shares, the market value at vesting is straightforward -- it is the stock market price on the vesting date. The employer's payroll team will use this to calculate PAYE.

For private company shares, valuation is more complex. HMRC must agree the valuation (through its Shares and Assets Valuation team) or the employer uses a methodology that can be defended. This is most common in US-headquartered companies with UK employees where the shares are listed on a US exchange -- the exchange rate conversion adds another layer of complexity.

Enterprise Management Incentives (EMI) and CSOP Schemes

Not all share awards work the same way. Two HMRC-approved schemes offer more favourable tax treatment:

EMI Options

Enterprise Management Incentive options are available to qualifying companies (broadly, those with gross assets below GBP30 million and fewer than 250 employees). When EMI options are exercised:

• No income tax arises on exercise if the options were granted at market value
• CGT applies on disposal, with Business Asset Disposal Relief (BADR) available at 18% after two years
• BADR is subject to a lifetime limit of GBP1 million of qualifying gains

EMI is significantly more tax-efficient than unapproved share awards for employees in qualifying companies.

CSOP Options

Company Share Option Plans allow companies of any size to grant options worth up to GBP60,000 (at grant) to employees. Options exercised within certain conditions attract no income tax on exercise, with CGT on disposal.

Section 431 Election: Restricting the Taxable Amount

Where shares are subject to forfeiture conditions or other restrictions at vesting (for example, the employee must return the shares if they leave within a further period), the employment income charge may be calculated on the restricted value rather than the unrestricted value.

Making a Section 431 election under ITEPA 2003 allows the employee and employer to agree to calculate the income tax charge on the unrestricted market value of the shares -- which means paying more tax now but eliminating a further income tax charge if the restrictions lift later and the value has increased.

This election is only beneficial if the shares are expected to increase in value after vesting but before the restrictions are released. Tax advisers who specialise in employment-related securities should be consulted before making this election.

PAYE Settlement and Self Assessment

If the employer withholds shares or cash to cover PAYE, the tax is settled at source and you do not generally need to report it additionally on a self assessment return -- unless your income triggers other self assessment obligations.

However, if you subsequently sell shares, the CGT disposal must be reported on self assessment. You cannot use the real-time capital gains tax reporting service if the disposal is connected to employment income that has already been taxed through PAYE -- a common point of confusion.

Practical Checklist at Each Vesting Event

1. Confirm the gross vesting value with your employer's equity or payroll team
2. Check whether a sell-to-cover or net settlement approach has been used
3. Verify the PAYE deductions match your expected income tax and NI rates
4. Check your P60 or payslip to confirm the vesting income is shown correctly
5. If your total income may exceed GBP100,000 or GBP60,000, consider whether pension contributions could reduce adjusted net income
6. Record the vesting date and vesting price as your CGT base cost for future disposals
7. If you sign a joint election, understand the additional tax cost and the income tax deduction that offsets it

Common Mistakes

Assuming all RSU income is salary: RSU income at vesting is employment income and goes through PAYE, but it is not pensionable pay under most pension scheme definitions. Employer pension contributions are not typically calculated on RSU income.

Forgetting CGT on disposal: Many employees pay the PAYE at vesting and assume their tax obligations are complete. The subsequent CGT on any additional gain must still be reported.

Missing the self assessment deadline: If you have RSU or share disposal income, you are very likely required to complete a self assessment return. The filing deadline is 31 January following the relevant tax year.

Not accounting for cross-border situations: If you were working in another country when the shares were granted or during the vesting period, a proportion of the vesting gain may be sourced to that country. Double taxation treaty provisions may apply.

Share awards and RSUs can represent very significant compensation, but the tax complexity is proportionate to the amounts involved. For vesting events above GBP50,000, specialist employment tax advice is usually cost-effective.