The Truth Behind Restricted Stock Units (RSUs)

Unlocking the Potential of RSUs with Black & White Accounting

Stock-based compensation has become a powerful tool for attracting and retaining top talent, especially in fast-growing tech companies, multinational corporations, and start-ups. Among the various equity-based incentives, Restricted Stock Units (RSUs) stand out as one of the most popular forms of employee rewards. But while RSUs can be lucrative, they also come with tax implications and potential pitfalls that many employees overlook.

At Black & White Accounting, we believe in breaking down complex financial topics so you can make informed decisions. In this blog, we uncover the truth behind RSUs—what they are, when to claim relief, key watch-outs, and how to optimise your stock-based compensation.

What Are Restricted Stock Units (RSUs)?

RSUs are a type of stock-based compensation granted to employees as part of their pay package. Unlike stock options, RSUs are granted with no upfront cost to the employee. However, they come with a vesting period, meaning employees only gain full ownership of the shares after a specific time or upon meeting certain performance criteria.

Once RSUs vest, they convert into actual shares of company stock (or sometimes a cash equivalent). At this point, the value of the shares is treated as income and subject to tax.

When Do RSUs Get Taxed?

The tax treatment of RSUs depends on where you are based and your company’s policies, but generally, RSUs are taxed upon vesting, not when they are granted. Here’s how it typically works:

1. At Grant – No tax liability as RSUs are not yet yours.
2. At Vesting – The market value of the shares on the vesting date is considered taxable income. Income tax, National Insurance Contributions (NICs), and potentially other levies apply.
3. At Sale – If you later sell the shares, you may be subject to Capital Gains Tax (CGT) on any appreciation in value beyond the vesting price.

For those working internationally, Double Tax Relief (DTR) may apply if RSUs are taxed in multiple jurisdictions.

When to Claim Relief on RSUs

RSU holders often miss out on valuable tax-saving opportunities. Here are a few ways to optimise taxation:

• Foreign Tax Credits – If your RSUs are taxed in multiple countries, you may be eligible for tax credits to avoid double taxation.
• Utilising Capital Gains Allowances – If you hold your RSU shares after vesting and they appreciate, planning your sale strategically can reduce CGT liability.
• Spreading Sales Across Tax Years – Selling shares over multiple tax years can help stay within CGT-free thresholds and lower tax exposure.
• Employer Withholding Strategies – Some companies allow employees to cover tax liabilities through sell-to-cover or cash payments—both of which impact how much of your RSUs you actually receive.

Key Watch-Outs with RSUs

While RSUs offer great financial benefits, there are several important watch-outs to consider:

1. High Tax Burden at Vesting – If you’re unaware of tax implications, vesting could lead to an unexpected tax bill.
2. Market Volatility – RSU shares could lose value after vesting, reducing the actual benefit.
3. Employer Withholding May Not Cover Full Tax Liability – Many companies withhold only the minimum required tax, meaning employees might still owe additional tax when filing.
4. Potential Double Taxation – If working abroad, RSUs might be taxed in both the country of employment and residence.

Failing to plan for these scenarios can result in financial strain rather than a rewarding windfall.

How Black & White Accounting Can Help

Managing RSUs effectively requires careful tax planning, especially if you work internationally or expect substantial stock-based income. At Black & White Accounting, we offer expert guidance to help you:

• Understand Your RSU Tax Position – We assess your tax obligations, including UK and international tax considerations.
• Maximise Tax Efficiency – We help you take advantage of available reliefs, allowances, and tax-saving strategies, including claiming double tax relief.
• Plan for Future Gains – We advise on optimal times to sell, reinvest, or diversify to avoid concentrated stock risk.
• Ensure Compliance with HMRC – Our team handles tax filings and helps you avoid unexpected liabilities.

Final Thoughts

RSUs are a valuable part of modern compensation packages, but they come with tax complexities that can impact your financial well-being. With expert planning, you can ensure you maximise your earnings while minimising tax liabilities.

At Black & White Accounting, we make tax planning clear, simple, and effective. Get in touch today and let’s make sense of your RSUs!