Capital Gains Tax on RSUs

Restricted stock units are taxed twice over: once as employment income when they vest, and again as a capital gain when the shares are eventually sold. Most of the problems we see arise at the second stage, because the information the broker provides was never designed for UK purposes.

When RSUs vest, the market value of the shares is charged to income tax and National Insurance, usually through PAYE. That same value becomes the acquisition cost for capital gains purposes, and if it is not carried across the employee is taxed twice on the same amount.

US brokers routinely report a cost basis that excludes the element already taxed as employment income, and in some cases report no basis at all. A UK return prepared from the broker's gain figure will therefore often overstate the gain substantially, in the worst cases by the entire value of the award.

UK share identification rules

The UK does not track shares in tax lots. A disposal is matched first against shares acquired on the same day, then against shares acquired in the following 30 days, and only then against the Section 104 pool, which holds the averaged cost of everything else.

US brokers apply FIFO or specific lot identification, which produces a different answer entirely. With quarterly vesting and periodic sales the 30-day rule is engaged repeatedly, and the two systems diverge further with every transaction. The position has to be rebuilt from the underlying vest and sale records rather than adapted from the broker's statement.

Other points that are routinely missed

Capital gains are computed in sterling. Both the acquisition value at vest and the disposal proceeds must be converted at the rates prevailing on those dates, which means a gain or loss can arise from exchange rate movement alone, even where the dollar value of the shares has not moved.

Shares withheld or sold at vest to fund the income tax and National Insurance charge are themselves disposals for capital gains purposes and need to be reported, even though the resulting gain is usually small.

Dividend equivalents paid on unvested awards are generally taxed as employment income rather than as dividends, which changes both the rate applied and the way they are reported.

Where several years of awards have vested and been sold, errors of this kind compound, and a single mis-stated base cost can distort every subsequent disposal through the Section 104 pool.

For these reasons the position is best reconstructed from first principles rather than corrected piecemeal.

Internationally mobile employees

Where the vesting period covers time spent working outside the UK, part of the employment income arising at vest may fall outside the UK charge, apportioned by reference to workdays over the period from grant to vest. That apportionment affects not only the income tax position but the base cost carried into the capital gains computation, and it interacts with Overseas Workday Relief and the Foreign Income and Gains regime. Getting it right at vest matters years later, when the shares are finally sold.

How we can assist

We rebuild RSU capital gains computations from the underlying vest and sale records, apply the UK matching rules correctly, convert to sterling at the proper dates and prepare the disclosures for your tax return. Where returns have already been filed using broker figures, we can review whether tax has been overpaid and, within the applicable time limits, seek recovery.