United Kingdom
Guide to stock options and RSU taxation in the UK. Understand income tax, National Insurance, and capital gains treatment for equity compensation.
The United Kingdom is one of the world's largest economies and a major tech hub. UK tax treatment of equity compensation differs significantly from the US—understanding the rules is essential for employees receiving stock options and RSUs.
Overview of UK Tax System
The UK has a progressive tax system with:
- Income Tax on employment income (20%, 40%, 45% bands)
- National Insurance (employee and employer contributions)
- Capital Gains Tax on share sales (10% or 20% for shares)
- Tax-advantaged schemes (EMI, CSOP, SAYE) for qualifying options
RSU Taxation
At Vesting
RSUs are taxed as employment income when they vest:
| Event | Tax Treatment | Rate |
|---|---|---|
| Vesting | Employment income | 20%, 40%, or 45% (plus NI) |
| National Insurance | Employee NI | 12% on band, 2% above upper limit |
Income Tax Bands (2024/25)
| Taxable Income | Rate |
|---|---|
| £0 - £12,570 | 0% (Personal Allowance) |
| £12,571 - £50,270 | 20% |
| £50,271 - £125,140 | 40% |
| Above £125,140 | 45% |
At Sale
| Event | Tax Treatment | Rate |
|---|---|---|
| Capital Gain | Capital Gains Tax | 10% (basic) or 20% (higher) |
| Annual Exemption | CGT allowance | £3,000 (2024/25) |
Stock Options
EMI (Enterprise Management Incentives)
The UK's main tax-advantaged option scheme for qualifying companies:
| Event | Tax Treatment |
|---|---|
| Grant | No tax |
| Exercise | No income tax or NI if qualifying conditions met |
| Sale | Capital gains tax (10% or 20%) |
Requirements: Company must be qualifying (trading, <250 employees, <£30M gross assets). Options must be exercised within 10 years.
Non-EMI Options
| Event | Tax Treatment |
|---|---|
| Grant | No tax |
| Exercise | Employment income on spread (FMV - strike) |
| Sale | Capital gains on post-exercise appreciation |
US-UK Tax Treaty
- Article 15: Employment income generally taxed where work is performed
- Article 13: Capital gains generally taxed in country of residence
- Foreign Tax Credit: US citizens can claim credit for UK tax paid
Key Takeaways
- RSUs taxed as employment income at vesting
- EMI options offer significant tax benefits for qualifying companies
- Capital gains tax: 10% or 20% depending on income
- National Insurance adds to effective rate
- US citizens must file both UK and US returns
Additional Resources
Disclaimer: This guide discusses UK tax rules for equity compensation. Tax laws change frequently. Always consult a qualified UK tax advisor before making decisions based on this information.
United Kingdom Tax FAQ
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