The two legs of RSU tax
The same vest is taxed very differently depending on your salary
Most people assume a bigger salary means a bigger tax rate on everything. RSUs break that intuition. The effective rate on the vest itself peaks in the middle of the salary range, not at the top, because that is where the personal allowance taper sits.
Effective tax rate on the vest, 2026/27
Highlighted rows sit in the personal allowance taper · England, Wales and Northern Ireland rates
| Salary | Vest | Tax on vest | Rate |
|---|---|---|---|
| £50,000Higher rate plus 2% NI | £20,000 | £8,362 | 41.8% |
| £70,000Standard higher-rate territory | £20,000 | £8,400 | 42.0% |
| £95,000Vest drags you through the taper | £30,000 | £18,218 | 60.7% |
| £110,000Entirely inside the taper zone | £20,000 | £12,300 | 61.5% |
| £150,000Additional rate, taper already spent | £50,000 | £23,500 | 47.0% |
Read the third and fifth rows together. A £30,000 vest on a £95,000 salary leaves £11,782. A £50,000 vest on a £150,000 salary leaves £26,500 from a vest not much larger in proportion. The person earning less keeps a far smaller share of their equity, because their vest lands squarely inside the taper while the higher earner has already passed through it.
Why you can end up owing HMRC after the shares are gone
Employers have to withhold tax on a vest, but many payroll systems apply a flat assumed rate rather than modelling your actual position for the year. A flat 40% or 45% is common. If the vest pushes you into the taper, that withholding is not enough, and the shortfall becomes a self-assessment liability months later.
60.7% effective
what many payrolls apply
payable by 31 January
still an underpayment
The uncomfortable part is the timing. The vest happens, sell to cover disposes of enough shares to satisfy the stated withholding, and the position looks closed. The balance surfaces the following January, by which point the remaining shares may have fallen in value or already been spent.
Work out the tax on your own vest
Enter your salary, the number of shares, and the vest price to see the exact income tax due, the effective rate, and what a later sale would add in capital gains. It handles the taper automatically, so it will show the 60% band if your vest reaches into it.
The second leg: capital gains if you hold
Once the vest has been taxed as income, the vest price becomes your base cost. Only growth above that is a capital gain. This is the part people most often get wrong, usually by fearing they will be taxed twice on the whole value. They will not.
Take the same £95,000 earner with a £30,000 vest who holds and later sells the shares for £40,000:
Capital gain
£10,000
£40,000 sale less £30,000 base
CGT due
£1,680
24% on £7,000 after the £3,000 exemption
Net from the whole award
£20,102
after income tax and CGT
Note how modest the second leg is next to the first. £18,218 went in income tax at vest; £1,680 went in CGT on a third as much again in growth. Capital gains rates of 18% and 24% are far below Income Tax rates, which is why the tax system is mildly biased toward holding. Whether you should hold is a different question: keeping the shares concentrates both your salary and your savings in one employer.
The one lever that genuinely moves the number
Pension contributions reduce adjusted net income, and adjusted net income is the figure the personal allowance taper is measured against. Bringing it back below £100,000 restores the full personal allowance and removes the 60% band from the vest entirely.
Why this works here and not everywhere
The taper is an Income Tax mechanism, and pension relief is given against Income Tax, so the two meet. Contrast Ireland, where the equivalent high-rate step is a USC surcharge, and Irish pension relief does not apply to USC at all. The same advice that works cleanly in the UK does nothing across the Irish Sea.
Timing matters as much as amount. A contribution made in the same tax year as the vest can reclaim the allowance; one made after 5 April cannot. If you know a large vest is coming, model it before the year end rather than after. The 60% tax trap guide covers the taper mechanics in full, and applies identically whether the income arrives as salary, bonus, or equity.
Frequently asked questions
How are RSUs taxed in the UK?
In two separate legs. At vest, the market value of the shares is treated as employment income and taxed through PAYE at your marginal Income Tax rate plus National Insurance, exactly as if it were salary. If you then keep the shares and sell later, any growth between the vest price and the sale price is a capital gain, taxed at 18% or 24% depending on your income, after the £3,000 annual exempt amount. You are not taxed twice on the same money: the vest value is taxed as income, and only the subsequent growth is taxed as a gain.
Why was my RSU vest taxed at nearly 60%?
Because the vest counts as income and can push you into the personal allowance taper. Between £100,000 and £125,140 of total income, HMRC withdraws £1 of personal allowance for every £2 earned, producing an effective marginal rate of roughly 60%. A £30,000 vest on a £95,000 salary takes total income to £125,000, so most of that vest is taxed inside the taper. Our calculation puts the tax on that vest at £18,218, an effective 60.7%, which is a higher rate than the same vest would attract for someone already earning £150,000.
Why do I owe HMRC money after my RSUs vested?
Because employer withholding is often a flat estimate rather than your true marginal rate. Many payroll systems withhold at 40% or 45% on a vest. If the vest actually pushes you into the taper, your real rate is closer to 60%, and the difference falls due through self-assessment. On a £30,000 vest at a £95,000 salary, withholding at a flat 40% covers £12,000 of a £18,218 liability, leaving £6,218 to pay later. The shares are usually already sold or held by then, so the bill arrives with no cash set aside against it.
What is sell to cover and does it cover enough?
Sell to cover means your broker automatically sells enough of the vesting shares to fund the tax withholding and hands you the rest. It is convenient but it only covers whatever rate your employer instructed, so it inherits the same shortfall problem. If you are anywhere near the £100,000 boundary, check the rate actually applied on your payslip rather than assuming the vest is settled, and set aside the difference.
Should I sell RSUs immediately at vest or hold them?
That is an investment decision rather than a tax one, because the income tax is already due either way. Selling at vest means no capital gain arises, so there is nothing further to report. Holding means any growth is taxed at 18% or 24%, which is well below Income Tax rates, but it also concentrates your savings in the same company that pays your salary. The tax system mildly favours holding; diversification usually argues the other way.
Do I need to file a self-assessment return for RSUs?
Often yes. You will generally need to file if your income exceeds £100,000, if you have capital gains above the £3,000 annual exempt amount, or if there is an underpayment from the vest that PAYE did not collect. Since RSU vests frequently trigger the first and third of those at once, most people receiving meaningful vests in the UK end up inside self-assessment.
Can pension contributions reduce the tax on an RSU vest?
Yes, and this is the most effective lever available. Pension contributions reduce your adjusted net income, which is the figure the personal allowance taper is measured against. Bringing adjusted net income back below £100,000 restores the full personal allowance and removes the 60% band entirely. Notably this works in the UK precisely because the taper is an Income Tax mechanism, unlike Ireland's USC surcharge, which pension contributions cannot touch.
How are RSUs taxed differently in Ireland?
The structure is the same, income tax at vest and CGT on later growth, but the numbers and the timing differ. Ireland taxes the vest at up to 52% through Income Tax, USC, and PRSI, and Irish CGT on the later gain is 33%, considerably higher than the UK's 24%. Ireland also has no personal allowance taper, so there is no equivalent of the 60% band on the vest itself.
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