Glossary · UK
What is Vesting Schedule?
The timeline over which an employee progressively earns entitlement to share options, restricted shares or other equity awards, typically over three to four years with an initial cliff period.
Full Definition
A vesting schedule sets out when an employee's equity award becomes theirs to keep or exercise. The most common structure in UK tech and startup companies is a four-year schedule with a one-year cliff: no shares vest in the first year of employment, but at the one-year anniversary 25% vest at once (the cliff), with the remaining 75% vesting monthly or quarterly over the following three years. If the employee leaves before the cliff, they receive nothing. After the cliff, unvested shares are typically forfeited on leaving, though some arrangements allow a "good leaver" to retain a pro-rata portion. The tax treatment depends on when the vesting event is deemed to occur and what type of scheme is in place. For unapproved share options and restricted share awards outside a formal HMRC scheme, income tax and NI typically arise at the point of vesting (or exercise for options), on the market value above any price paid. For HMRC-approved schemes such as EMI, the tax event is generally deferred to disposal of shares if conditions are met. Acceleration provisions (triggered by a company sale) can cause all unvested awards to vest immediately, creating a potentially large tax bill.