RSUs - What Are They And What Should I Do With Them?

Written by Jamie Flook - Managing Director and Certified Financial Planner at Lab Financial Planning.

Jamie helps clients who hold RSUs, some of whom work for Amazon and Google, and others work for unlisted companies who provide RSU compensation.

Chances are you work for a tech company and you've been awarded RSUs as part of your compensation. Great, but what are they, how do they work, how are they taxed, and what should you do with them?

What Is An RSU?

RSU stands for Restricted Stock Unit and is an award of shares in your company that are transferred into your ownership, according to their vesting schedule.

For an RSU to vest, you must meet specific requirements set out by your employer although they are more commonly tied to simply staying employed with the company for a set amount of time.

What Does RSU Vesting Mean?

Vesting is simply the act of shares that you are due to receive, actually becoming your shares, that you can choose what to do with.

Before the RSUs have vested, they are more of an intention to become shares. By giving you your shares over a period of months and years, it can act as an incentive to stay in employment with the company who gave you the RSUs. This may be where you have heard the expression 'gilded cage'!

By vesting over a number of years instead of in one go, this also reduces the amount of income tax payable up front and instead spreads it over the number of years as specified in the vesting schedule.

RSU Vesting Schedules Explained

Your vesting schedule should be set out for you. Often you'll get a guide and a brokerage account to log into, which shows when RSUs are set to vest and the estimated amount you'll receive, based on the current share price and amount of shares you are due to receive on vesting.

Often, these will vest over a period of 2 or 4 years, and typically vest in equal increments. An example would be 25% of your shares vesting every 6 months over a 2 year period.

With most brokerage accounts, you'll be able to clearly see which RSUs have yet to vest, and which have vested and their current value.

Often, your employer will give a guide share price over the coming years, helping you understand what these shares could be worth in the future.

Are RSUs Taxed And If So, How?

RSUs are not taxed when awarded, only ever when they vest. So if you've just been awarded some, please don't panic!

When RSUs vest they are liable for two types of tax; income tax and employee’s National Insurance Contributions. More often than not, you will unfortunately also be liable for a third type of tax: Employer's National Insurance Contributions.

Employer's like to give you shares, but don't like paying the tax due on them!

To pay the tax on RSUs, you often have the option to sell down the required number of shares to cover the tax bill. This can usually be done by the employer through the PAYE system to make it easier for the RSU recipient.

If your employer handles the tax in this way, you shouldn't see a difference in your take-home pay as a result of receiving the RSUs, as the sold-down stock should cover your liability.

RSUs can be lucrative on the face of it, particularly if the value of the shares go up in value since award.

The tax rate ends up being around 55% for most people.

This is the combination of additional rate income tax, Employee NI Contributions and Employer NI Contributions.

If you are a basic rate or higher rate tax payer, the tax rate will be lower.

What about Capital Gains Tax and RSUs?

RSUs also become liable to Capital Gains Tax from the moment they vest. 

In the current tax year (2024/25) each person has £3,000 Capital Gains Annual Exempt Amount, which essentially is the amount of gain you can sell without being taxed.

Should you hold on to your shares upon vesting and they rise significantly in value, you could be liable for Capital Gains Tax upon selling them.

If you were to sell them down immediately upon vesting, you should avoid Capital Gains Tax.

As a reminder, Capital Gains Tax rates increased as a result of the October 2024 Budget. Basic rate Capital Gains Tax is now charged at 18% on the taxable, and 24% for the Higher Rate.

Can I Reduce The Tax Of My RSUs?

You absolutely can reduce the tax burden of your RSUs and better still, there is a way of potentially reducing both your income tax and capital gains tax liability.

As we have outlined above, there are tax implications from the moment the units are vested, and you now hold them as company shares. As any vested RSUs count against your total income for that year, the value of the RSUs increases your total taxable earnings for that year.

To reduce the income tax burden, you can make a pension contribution. A pension contribution reduces your total taxable income, by the amount of contribution you make.

Can my RSUs expire?

No. Once you have received the RSUs and their vesting schedule, you will be entitled to these as per the agreement terms laid out.

The only circumstances in which your RSUs would not eventually vest is if you left your employer whilst you still had unvested RSUs, or if the company is sold.

Can my RSUs lose value?

Once an RSU has vested, it will behave exactly like any other company shares, so the value of them will rise and fall in-line with the company's share price at the next valuation.

What Happens To My RSUs If I Leave My Company?

If you leave your company, you are very likely to lose all your unvested shares, but you'll keep any shares already vested.

Should I Sell My RSUs Immediately?

The best way to think about it, is to ask yourself this question:

If you were given the amount of money your RSUs are worth in cash, would you go and buy the company stock you've been given?

If yes, they may be worth hanging on to. If not, then perhaps selling them makes more sense.

Like all aspects of financial planning, there is never a one-size-fits-all solution and the answer to this question depends on your personal circumstances.

That said, the seemingly more popular option for clients, in my experience, is to sell them down as soon as they have vested and use the post-tax proceeds to invest in something more tax-efficient like their ISA or pension, or simply use this money to fund that year's holiday!

If you want to discuss your situation to get a clear answer as to what you should do with your RSUs, we're happy to chat.

We'll consider your broader financial picture and objectives to understand what is right for you to do.

Get in touch via one of the buttons at the top of the page.