RSUs are taxed as employment income when they vest, with Income Tax and National Insurance collected through PAYE on the market value of the shares. This guide explains how vesting is taxed, how "sell to cover" works, and the Capital Gains Tax treatment if the shares grow in value before you sell.
How RSUs Are Taxed at Vesting
RSUs are taxed as employment income at the point they vest, not when they are granted. The market value of the shares on the vesting date is treated as earnings for that pay period, subject to Income Tax at your marginal rate and Class 1 National Insurance, collected by your employer through PAYE in the same way as a cash bonus.
How "Sell to Cover" Works
Because tax is due on the market value of vested shares but you receive shares rather than cash, employers commonly automatically sell a portion of the newly vested shares -- known as sell to cover -- to raise the cash needed for the Income Tax and National Insurance due through PAYE, leaving you holding the remaining shares after the sale.
National Insurance on Vesting
RSU vesting income is generally subject to employee Class 1 National Insurance at the standard rates for 2026/27 -- 8% between the primary threshold and the upper earnings limit of £50,270, and 2% above that -- on top of your employer's own Class 1 secondary NI liability on the vested value.
Capital Gains Tax on a Later Sale
Once RSU shares have vested and Income Tax has been charged on their value at that date, any further increase in value before you eventually sell them is a capital gain, taxed at 18% for basic rate taxpayers or 24% for higher and additional rate taxpayers on most listed shares for 2026/27, after using your £3,000 annual CGT exempt amount.
Self Assessment Reporting
Even though tax is usually collected through PAYE at vesting, many RSU holders still need to complete a Self Assessment return -- particularly higher earners affected by the Personal Allowance taper, anyone with a foreign employer share plan, or anyone selling shares for a capital gain above the annual exempt amount -- to report the position accurately to HMRC.
Frequently Asked Questions
How are Restricted Stock Units taxed in the UK?
RSUs are taxed as employment income at the point they vest -- not when they are first granted. The market value of the shares on the vesting date is treated as earnings, subject to Income Tax and National Insurance through your employer's PAYE system, in the same way as a cash bonus.
Do I pay tax when RSUs are granted or only when they vest?
Generally only at vesting. While RSUs are unvested, you do not yet own the shares outright and there is normally no tax charge; the taxable event occurs when the shares vest and become yours, at which point their market value is added to your taxable employment income for that pay period.
What is "sell to cover" and why does it happen?
Because the tax due on vesting is worked out on the market value of the shares but you do not receive cash, employers commonly arrange to automatically sell a portion of the vested shares -- known as "sell to cover" -- to raise the cash needed to pay the Income Tax and National Insurance due through PAYE, leaving you with the remaining shares.
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Which National Insurance rate applies to RSU vesting income?
RSU income at vesting is generally subject to employee Class 1 National Insurance at the standard rates applying to your income level -- 8% on earnings between the primary threshold and the upper earnings limit of £50,270, and 2% above that, for 2026/27, on top of the employer's own Class 1 NI liability on the vested value.
Do RSUs count towards my Personal Allowance taper?
Yes -- the market value of vested RSUs is added to your other taxable income for the year, so a large vesting event can push your total income above the £100,000 Personal Allowance taper threshold, gradually reducing your £12,570 Personal Allowance by £1 for every £2 of income above that level, and potentially removing it entirely by £125,140.
What happens if I sell my vested RSU shares later for a profit?
Any increase in value between the vesting date (when Income Tax was already charged on the market value) and the date you sell the shares is a capital gain, taxed at 18% for basic rate taxpayers or 24% for higher and additional rate taxpayers on most listed shares for 2026/27, after using your £3,000 annual CGT exempt amount.
Do I need to report RSU vesting on a Self Assessment tax return?
Even though tax is usually collected through PAYE at vesting, many RSU holders -- particularly higher earners, those with foreign employer share plans, or anyone who later sells shares for a capital gain above the exempt amount -- need to complete a Self Assessment return to report the shares and any subsequent disposal accurately.
Are RSUs from a US employer taxed differently in the UK?
If you are UK tax resident, RSUs from a US (or other overseas) parent company are still generally taxed under UK rules at vesting through your UK employer's PAYE, though cross-border employment, US tax withholding, and any time spent working overseas during the vesting period can add complexity that may require specialist cross-border tax advice.
Can I reduce the tax charge on RSU vesting?
There is limited scope to reduce the Income Tax and NI charge at vesting itself, since it is based on the market value at that date and taxed as employment income, but planning around the Personal Allowance taper, pension contributions to bring taxable income down, and timing any subsequent share sale to make use of your annual CGT exempt amount can all help manage the overall tax cost.
What records should I keep for RSU tax purposes?
Keep records of the grant date, vesting dates and quantities, the market value of shares at each vesting date (this becomes your acquisition cost for CGT purposes), any shares sold through "sell to cover", and your payslips showing the tax and NI deducted -- these are essential for completing Self Assessment accurately and calculating any capital gain correctly when you eventually sell.
Disclaimer: This guide reflects Income Tax, National Insurance and CGT rates confirmed for 2026/27, including the £50,270 upper earnings limit and £3,000 CGT annual exempt amount. This guide is for general information only and is not professional advice. Consult a qualified tax adviser and refer to gov.uk for current official guidance before relying on any treatment.
