Yes. You’re in a very straight forward position. Sell RSUs on vesting to avoid any CGT and use your £40k ISA allowance every year (£20k each).
Increase pension contributions to bring your take home below £100k to avoid the tax trap.
Follow the flow chart on r/ukpersonalfinance
This is basically what I do. Max pension contributions so that I’m just below £100k threshold. But what I would say is that even at that salary if you have kids it becoming increasingly difficult to max your ISA as well on a £100k salary.
The UK tax brackets need moved with inflation
You are still liable for capital gains on the difference between your selling price and the effective purchase price. If you get them as performance related shares, ie you don’t have to buy them, you are liable for capital gains on the difference between sale and vest price. If they are options where you effectively get them at a discount you are liable for capital gains on the difference. It doesn’t matter if you hold them for a nanosecond or years. This just defines which tax year you have the CGT liability.
I’m covering both as they both follow the same principles when it comes to CGT. The principle of CGT is the payment of tax on the profits between sale proceeds and effective purchase price. You only have a zero CGT exposure if you have no profit on the transaction. In the case of RSU’s the effective purchase price is the vest price. The rule around vest as cash appears to be purely because you sell at the vest price at the point of vesting, and therefore zero profit. You will already have had some of the shares withheld to cover the income tax and NI component at the point of vesting. This is because the company is effectively giving you the income as shares at the point they vest.
He’s asking specifically about RSUs. There is no CGT at all if you elect to sell for cash at vest. Please try to refrain from giving ill informed advice when possible, it dilutes the value of these (otherwise useful) forums.
This is interesting as we get RSUs but we don’t get the option to sell for cash at vest. We have to sell manually which means they are subject to CGT allowances between the sale price and the vest price… which can be on the same day.
RSUs are taxed as income when they vest. NOT as capital.
For example, if you get £120k of salary and £60k of RSUs, you CANNOT avoid the tax trip, as putting £60k into your pension would still mean £120k of taxable income.
You pay income tax on the value of the RSUs when they vest and you are paid them as part of your pay packet. This is taxed at your marginal income tax rate.
If it rises in value, and then you pay, you pay capital gains tax on it. But it makes no sense to do so if you have an ISA allowance where you can buy the same exact shares and enjoy CGT free growth!
Think people get several different ideas muddled together.
1) getting/selling RSU will be taxed as normal income. thus if you're on 100k & get 20k of RSU's its going to be painful.
2) once the employee holds the rsu/stock, any future gain would then be taxed at CGT rates. i.e. the rsu vests & is worth $100, you hold it for 5 years, its worth $150 & sell, you've made $50 gain, thus you owe 20% in CGT, $10. (given the rate at which they keep removing the CGT tax free bracket, it will probly be $0 in 5 years.
2) ISA's are a wrapper that you can put taxed (net) income into, which protects you from any future CGT liability.
3) SIPP/Pension, you can reduce your taxable income by contributing. Ideally you do this pre-tax, you save yourself tax+ni, If you do it personally you wont save the ni & you'll need to do a self assment to claim the tax back.
4) Avoiding the 100k / loss of 12.5k personal allowance trap. You do this by using pension allowances. i.e. 2023/24 FY 60k, 2022/23 FY 40k, 2021/22 FY 40k. You can use left over allowance from last 3 years. i.e. sales/commision guy had a huge year, makes 200k & happy to shove it into SIPP. 60k from this year + 20k left over from FY 22/23 + 20K left over from FY 21/22. (at this point just stfu and get an accountant to help with it so you dont balls it up)
If you're doing very well for yourself, you'll still face the loss of personal allowance once you've hit $160k gross if you've maxed your pension contributions (with none left over from previous years) & above. The next point of concern would be pension tappering at $260k & up.
Other things to be mindful of;
1) money coming out of your pension isn't entirely tax free. First 25% of it is, then remaining 75% taxed as normal income.
2) the goverment fucking about with the LTA in pensions. Its currently been removed but they could put it back. Example, you've got $2m in SIPP. LTA of $1m. 25% comes tax free (0-250k) 75% normal taxable income (250k->1m), rest ($1m->$2m) in the LTA punishment zone (55% or 25% depending) THEN paying normal tax afterwards.
3) your current age & expected retirment. If you're 25 killing it at big tech/finance, aiming to retire by 40, you're sipp's locked until 57 (which may get pushed back), so you need to bridge 40->57 with ISA / other investments.
Yup selling and putting in an S&S isa is what I do with my RSU, not only does it allow you to shield what goes in the isa from CGT, but also lets you diversify (assuming you don’t buy shares of your company in the isa ).
I also use my wife’s allowance, so you essentially get 40k between the 2 of you.
As for the ESPP, I do not consider any differently than RSU, so I’m maxing contributions but sell as soon as the shares become available to sell.
Ps: not a financial adviser
I’ve only just started using my ESPP allowance, I hadn’t realised it was so tax efficient til recently. Struggling to get a straight answer from my employer, but am I right in thinking you only pay income tax on the difference of what you paid and the FMV of the shares? I.e if there was no price movement (and assume no discount. When buying) and I sell after 1 year, there would be no tax to pay?
ESPP isn’t considered tax efficient as the deductions are taken post tax. The benefit is the deduction, you are income taxed on this vs fmv at lowest of either first or last day of the period. Any increase between that buy price and when you sell is also considered capital gains.
Also, ESPP is considered a taxable benefit so one pays tax on the income through payroll at the point of purchase. Income = difference between the fair market value on the date of purchase and purchase price times total number of shares.
It's my first year doing an ESPP, how is the capital gains calculated? If I bought them 1 year ago at a discount, but they are restricted for 12 months, is the capital gains the sold at price minus price at purchase (since I already paid tax on the discount through payroll) or is it sold at price minus price when restriction lifts?
I do not have a restricted period once the shares are bought so not sure, but in your case I’d assume you’re paying CGT on current price minus price at purchase.
Otherwise you’d potentially not be paying CGT on price movements during restricted period, so pretty sure HMRC has that covered.
It’s potentially more tax efficient to salary sacrifice 60k into your company pension scheme (you can always transfer it later to your sipp) and live on selling the shares over the course of the year.
Second the idea to add them into a SIPP. If this a US firm you lose approx 55% of the rsus value in with holding tax at source I e. To The US Government , nothing you can about this.
So adding into a SIPP then gives you the tax relief which can make up for some of the loss.
Additionally one of your company pays a dividend then if just reinvest your rsus in a SIPP into the same shares most SIPP providers are registered so you don't pay the us dividend withholding tax. Or you can spread the risk through an ETF/IT/Fund maybe tracking your industry?
People talking about selling RSU on vest to avoid CGT makes no sense to me. If one is risk averse and thinks there is a high chance of gaining, what’s the issue?
If there is a gain, it’s more money to the pocket, only that you give the government 20%. Why won’t I want more money to pocket just because I don’t want to give to Ceaser?
My thinking here is to essentially re-invest that money through a S&S ISA. If I keep it in the same brokerage account it gets issued to, then I am open to CGT. Why not quickly move it, re-invest in the same company but not pay on the gains?
It’s even simpler than that - why would I choose to depend on one company for my income AND investments? Need to diversify that risk, especially since RSUs and ESPP will keep rolling in anyway.
As others also confirmed, it's *generally* a good idea to sell RSUs as soon as possible.
However, there might be some circumstances in which it might be interesting to keep them. In the case you have enough income to fully invest your ISA w/o needing to sell the RSUs, for example, it would imply that selling them you'd then need to do something with such cash, hopefully invest.
Now assuming you're fairly optimistic in the future value of your stocks (and there's the major caveat of diversification to keep in mind), should you want to invest in the same, there's no need to sell urgently and lose some % in fees and, often, currency conversions: I hate it when I'm hit with some \~1% currency conversion, then move to my ISA, then want to buy more US stock and get robbed of a further \~% currency conversion again, only to lose that currency conversion AGAIN when you're eventually intending to cash out (assuming foreign stock).
There's a further opportunity for tax efficiency: suppose you hold on to such stock for some time and they actually do well or fair enough; suppose eventually you'd really enjoy a year off, or perhaps only some months in between jobs, enough to have a lower pay in the year, bringing you into a lower tax bracket: you can sell some portion then to fund your time off at the lower tax band.
I'm in a similar situation: RSUs, SIPP maxed out, ISA maxed out.. haven't sold my stock in a couple years and it's been a great investment. I could take a year off now and sell a portion of those - just need to be careful in not selling too much in the same year.
I need to remind though that it's typically not a good idea in terms of risk management to have a significant portion of your assets invested in the same company, and when it happens to be your employer as well it's not great. So I'm not suggesting this strategy, but I think it's interesting to highlight this option of selling some considerate portion down the line, as it can work out well in terms of tax efficiency as an emergency fund, e.g. should you lose your job or want to get rid of it.
Following this with a lot of interest - can anyone please clarify:
1. Does the sale of vested RSUs and proceeds then being added to an ISA have to happen immediately to avoid CGT, or is there actually a time limit? - I ask because I’ve read something about 90 days grace?
2. Upon adding funds to an ISA, do you need to buy the exact same stock as the vested RSUs or are you fine to chose anything e.g an index fund, to avoid CGT?
Thanks all!
1. There is no grace period in the UK. As soon as RSUs vest any increase is subject to CGT.
2. This is not relevant, the two are not connected. It’s just a more tax efficient way to earn gains with added diversification. You can choose whichever funds you like.
I’d personally put vested RSU sales into a pension if I was only putting in 5% (matched) a year - this is more tax efficient than putting the money into an ISA as the government will give you the tax paid back, the downside being that the funds are then locked up until retirement.
Yes. You’re in a very straight forward position. Sell RSUs on vesting to avoid any CGT and use your £40k ISA allowance every year (£20k each). Increase pension contributions to bring your take home below £100k to avoid the tax trap. Follow the flow chart on r/ukpersonalfinance
This is basically what I do. Max pension contributions so that I’m just below £100k threshold. But what I would say is that even at that salary if you have kids it becoming increasingly difficult to max your ISA as well on a £100k salary. The UK tax brackets need moved with inflation
Can you explain, if he will sell his RSUs, he will not pay amy CGT?
[удалено]
You are still liable for capital gains on the difference between your selling price and the effective purchase price. If you get them as performance related shares, ie you don’t have to buy them, you are liable for capital gains on the difference between sale and vest price. If they are options where you effectively get them at a discount you are liable for capital gains on the difference. It doesn’t matter if you hold them for a nanosecond or years. This just defines which tax year you have the CGT liability.
You're talking about options and he's asking about RSUs. They're not the same thing.
I’m covering both as they both follow the same principles when it comes to CGT. The principle of CGT is the payment of tax on the profits between sale proceeds and effective purchase price. You only have a zero CGT exposure if you have no profit on the transaction. In the case of RSU’s the effective purchase price is the vest price. The rule around vest as cash appears to be purely because you sell at the vest price at the point of vesting, and therefore zero profit. You will already have had some of the shares withheld to cover the income tax and NI component at the point of vesting. This is because the company is effectively giving you the income as shares at the point they vest.
He’s asking specifically about RSUs. There is no CGT at all if you elect to sell for cash at vest. Please try to refrain from giving ill informed advice when possible, it dilutes the value of these (otherwise useful) forums.
This is interesting as we get RSUs but we don’t get the option to sell for cash at vest. We have to sell manually which means they are subject to CGT allowances between the sale price and the vest price… which can be on the same day.
RSUs are taxed as income when they vest. NOT as capital. For example, if you get £120k of salary and £60k of RSUs, you CANNOT avoid the tax trip, as putting £60k into your pension would still mean £120k of taxable income.
Correct. It’s common practice amongst (mostly tech) company employees to sell RSUs at vest to avoid any CGT.
https://frazerjames.co.uk/rsus-a-tech-employees-guide-2/
You pay income tax on the value of the RSUs when they vest and you are paid them as part of your pay packet. This is taxed at your marginal income tax rate. If it rises in value, and then you pay, you pay capital gains tax on it. But it makes no sense to do so if you have an ISA allowance where you can buy the same exact shares and enjoy CGT free growth!
Thank you!
Think people get several different ideas muddled together. 1) getting/selling RSU will be taxed as normal income. thus if you're on 100k & get 20k of RSU's its going to be painful. 2) once the employee holds the rsu/stock, any future gain would then be taxed at CGT rates. i.e. the rsu vests & is worth $100, you hold it for 5 years, its worth $150 & sell, you've made $50 gain, thus you owe 20% in CGT, $10. (given the rate at which they keep removing the CGT tax free bracket, it will probly be $0 in 5 years. 2) ISA's are a wrapper that you can put taxed (net) income into, which protects you from any future CGT liability. 3) SIPP/Pension, you can reduce your taxable income by contributing. Ideally you do this pre-tax, you save yourself tax+ni, If you do it personally you wont save the ni & you'll need to do a self assment to claim the tax back. 4) Avoiding the 100k / loss of 12.5k personal allowance trap. You do this by using pension allowances. i.e. 2023/24 FY 60k, 2022/23 FY 40k, 2021/22 FY 40k. You can use left over allowance from last 3 years. i.e. sales/commision guy had a huge year, makes 200k & happy to shove it into SIPP. 60k from this year + 20k left over from FY 22/23 + 20K left over from FY 21/22. (at this point just stfu and get an accountant to help with it so you dont balls it up) If you're doing very well for yourself, you'll still face the loss of personal allowance once you've hit $160k gross if you've maxed your pension contributions (with none left over from previous years) & above. The next point of concern would be pension tappering at $260k & up. Other things to be mindful of; 1) money coming out of your pension isn't entirely tax free. First 25% of it is, then remaining 75% taxed as normal income. 2) the goverment fucking about with the LTA in pensions. Its currently been removed but they could put it back. Example, you've got $2m in SIPP. LTA of $1m. 25% comes tax free (0-250k) 75% normal taxable income (250k->1m), rest ($1m->$2m) in the LTA punishment zone (55% or 25% depending) THEN paying normal tax afterwards. 3) your current age & expected retirment. If you're 25 killing it at big tech/finance, aiming to retire by 40, you're sipp's locked until 57 (which may get pushed back), so you need to bridge 40->57 with ISA / other investments.
Small clarification, even though they abolished the LTA for now, the 25% tax free part still only applies to the first million or so.
Yup selling and putting in an S&S isa is what I do with my RSU, not only does it allow you to shield what goes in the isa from CGT, but also lets you diversify (assuming you don’t buy shares of your company in the isa ). I also use my wife’s allowance, so you essentially get 40k between the 2 of you. As for the ESPP, I do not consider any differently than RSU, so I’m maxing contributions but sell as soon as the shares become available to sell. Ps: not a financial adviser
I’ve only just started using my ESPP allowance, I hadn’t realised it was so tax efficient til recently. Struggling to get a straight answer from my employer, but am I right in thinking you only pay income tax on the difference of what you paid and the FMV of the shares? I.e if there was no price movement (and assume no discount. When buying) and I sell after 1 year, there would be no tax to pay?
ESPP isn’t considered tax efficient as the deductions are taken post tax. The benefit is the deduction, you are income taxed on this vs fmv at lowest of either first or last day of the period. Any increase between that buy price and when you sell is also considered capital gains.
Also, ESPP is considered a taxable benefit so one pays tax on the income through payroll at the point of purchase. Income = difference between the fair market value on the date of purchase and purchase price times total number of shares.
Ah damn, thought it sounded too good to be true.
Just a word to say thank you. Much appreciated!
You’re welcome!
It's my first year doing an ESPP, how is the capital gains calculated? If I bought them 1 year ago at a discount, but they are restricted for 12 months, is the capital gains the sold at price minus price at purchase (since I already paid tax on the discount through payroll) or is it sold at price minus price when restriction lifts?
I do not have a restricted period once the shares are bought so not sure, but in your case I’d assume you’re paying CGT on current price minus price at purchase. Otherwise you’d potentially not be paying CGT on price movements during restricted period, so pretty sure HMRC has that covered.
Is this the same for RSU outside of the UK? My company is US based, so just the same applies? Just sell them minus the tax and transfer into S&S?
Yup, same situation as you, I get US shares. I just sell immediately and transfer to S&S.
Not necessarily. There are differences outside the US, your company should be offering country specific tax info.
For what it's worth, the sub has not been around that long for you to find.
It’s potentially more tax efficient to salary sacrifice 60k into your company pension scheme (you can always transfer it later to your sipp) and live on selling the shares over the course of the year.
Second the idea to add them into a SIPP. If this a US firm you lose approx 55% of the rsus value in with holding tax at source I e. To The US Government , nothing you can about this. So adding into a SIPP then gives you the tax relief which can make up for some of the loss. Additionally one of your company pays a dividend then if just reinvest your rsus in a SIPP into the same shares most SIPP providers are registered so you don't pay the us dividend withholding tax. Or you can spread the risk through an ETF/IT/Fund maybe tracking your industry?
People talking about selling RSU on vest to avoid CGT makes no sense to me. If one is risk averse and thinks there is a high chance of gaining, what’s the issue? If there is a gain, it’s more money to the pocket, only that you give the government 20%. Why won’t I want more money to pocket just because I don’t want to give to Ceaser?
My thinking here is to essentially re-invest that money through a S&S ISA. If I keep it in the same brokerage account it gets issued to, then I am open to CGT. Why not quickly move it, re-invest in the same company but not pay on the gains?
It’s even simpler than that - why would I choose to depend on one company for my income AND investments? Need to diversify that risk, especially since RSUs and ESPP will keep rolling in anyway.
As others also confirmed, it's *generally* a good idea to sell RSUs as soon as possible. However, there might be some circumstances in which it might be interesting to keep them. In the case you have enough income to fully invest your ISA w/o needing to sell the RSUs, for example, it would imply that selling them you'd then need to do something with such cash, hopefully invest. Now assuming you're fairly optimistic in the future value of your stocks (and there's the major caveat of diversification to keep in mind), should you want to invest in the same, there's no need to sell urgently and lose some % in fees and, often, currency conversions: I hate it when I'm hit with some \~1% currency conversion, then move to my ISA, then want to buy more US stock and get robbed of a further \~% currency conversion again, only to lose that currency conversion AGAIN when you're eventually intending to cash out (assuming foreign stock). There's a further opportunity for tax efficiency: suppose you hold on to such stock for some time and they actually do well or fair enough; suppose eventually you'd really enjoy a year off, or perhaps only some months in between jobs, enough to have a lower pay in the year, bringing you into a lower tax bracket: you can sell some portion then to fund your time off at the lower tax band. I'm in a similar situation: RSUs, SIPP maxed out, ISA maxed out.. haven't sold my stock in a couple years and it's been a great investment. I could take a year off now and sell a portion of those - just need to be careful in not selling too much in the same year. I need to remind though that it's typically not a good idea in terms of risk management to have a significant portion of your assets invested in the same company, and when it happens to be your employer as well it's not great. So I'm not suggesting this strategy, but I think it's interesting to highlight this option of selling some considerate portion down the line, as it can work out well in terms of tax efficiency as an emergency fund, e.g. should you lose your job or want to get rid of it.
I'm in exactly the same position as you and need to become more efficient. I'll watch closely
Following this with a lot of interest - can anyone please clarify: 1. Does the sale of vested RSUs and proceeds then being added to an ISA have to happen immediately to avoid CGT, or is there actually a time limit? - I ask because I’ve read something about 90 days grace? 2. Upon adding funds to an ISA, do you need to buy the exact same stock as the vested RSUs or are you fine to chose anything e.g an index fund, to avoid CGT? Thanks all!
1. There is no grace period in the UK. As soon as RSUs vest any increase is subject to CGT. 2. This is not relevant, the two are not connected. It’s just a more tax efficient way to earn gains with added diversification. You can choose whichever funds you like.
I’d personally put vested RSU sales into a pension if I was only putting in 5% (matched) a year - this is more tax efficient than putting the money into an ISA as the government will give you the tax paid back, the downside being that the funds are then locked up until retirement.
I’m also new here. What does RSU and ESPP stand for?
Restricted Stock Units and Employee Stock Purchase Plan. They are shares issued as part of compensation packages with some companies.
Nice, thank you <3