RSU and ESPP Capital Gains Tax in the UK

In the UK, RSUs and ESPP shares are taxed twice, but never on the same value. When RSUs vest, income tax and National Insurance are charged through PAYE on the market value of the shares. That market value then becomes your capital gains tax base cost, so when you sell, capital gains tax only applies to the growth after the vest date. For ESPP shares, the discount is taxed as pay and the base cost is the market value on the purchase date.

The tricky parts are not the principle but the detail: sell-to-cover sales, the 30-day rule, and converting dollar amounts to pounds. Each is covered below, with a worked example.

How RSUs are taxed in the UK

A restricted stock unit is a promise to give you shares once a vesting condition is met, usually staying employed until a set date. When the units vest and the shares are delivered, the market value of those shares is employment income. For shares in a listed company, your employer collects income tax and National Insurance on it through PAYE.

From that point the shares are an ordinary investment. HMRC's ERSM180030 explains that shares acquired through employment usually have a capital gains tax cost made up of their market value when acquired, plus certain amounts already charged as employment income. In practice, for an RSU, your base cost is the market value on the vest date. You pay capital gains tax only on any rise in value after that, and a fall gives you a capital loss.

Some plans pay dividend equivalents on unvested units. HMRC's ERSM20193 says these are generally taxed as earnings in the year they are received, not as dividends. Dividends paid on shares you already hold after vesting are ordinary dividend income.

Sell-to-cover: a disposal with a near-nil gain

Many plans sell some of the vested shares straight away to pay the tax. These sell-to-cover sales are disposals for capital gains tax. Because they happen on the vest day, the same-day rule in TCGA 1992 s105 matches them with that day's vest. The cost is the vest-date market value and the proceeds are close to it, so the gain is roughly nil, less the dealing fees.

They still matter. If you are registered for Self Assessment, HMRC's reporting guidance says you must report gains when your total sale proceeds for the year are more than £50,000, and sell-to-cover proceeds count towards that total. Regular vests with sell-to-cover can pass that threshold in a single year even when your gains are small.

One honest caveat: the sale is usually traded on the vest day but settles two or three business days later. HMRC has not published guidance specifically on which date applies to a sell-to-cover sale. FiscalFox uses the trade date.

The 30-day rule trap

Under TCGA 1992 s106A, if you sell shares and then acquire more of the same shares within the next 30 days, the sale is matched with those new shares first, before your Section 104 pool. An RSU vest or an ESPP purchase is an acquisition, so it counts.

With monthly or quarterly vests and regular ESPP purchase dates, a sale is often followed by a vest within 30 days without you choosing it. The sale is then matched with the new shares at their own vest-date value, not with the average cost of the shares you thought you were selling. The gain or loss can be quite different from the one in your plan statement, because US plan statements and gain reports do not apply UK matching rules. See the 30-day rule guide for how the matching works step by step.

Dollars to pounds: convert each side, not the gain

RSU and ESPP amounts are usually in dollars, but UK capital gains tax is worked out in pounds. Convert the cost at the exchange rate on the vest or purchase date, and the proceeds at the rate on the sale date. HMRC's CG78310 says you should not work out the gain in the foreign currency and convert that.

Worked example. 60 shares vest at $50 each when £1 buys $1.333 (0.75 GBP per USD). Some months later, with nothing else bought or sold, all 60 are sold at $60 each, with a $0.10 fee, when £1 buys $1.25 (0.80 GBP per USD). The exchange rates are illustrative.

The shortcut understates the gain by £150.00 here, because it converts the $3,000 cost at the sale-date rate (£2,400.00) instead of the vest-date rate (£2,250.00). The dollar strengthened between vest and sale, and that currency movement is part of the taxable gain. When the pound strengthens instead, the shortcut overstates the gain. Either way it is not the method HMRC accepts. Our US shares and exchange rates guide covers which rate to use.

ESPP shares (US section 423 plans)

In a US employee stock purchase plan, you save from your salary and the plan buys shares at a discount on the purchase date. For UK tax, the discount, the difference between the market value on the purchase date and the price you paid, is employment income. Where the shares are readily convertible assets, as shares in a listed company normally are, income tax and National Insurance on it are collected through PAYE.

Your capital gains tax base cost is the market value on the purchase date, not the discounted price you paid. Using the discounted price would tax the discount a second time when you sell.

Other share schemes

SAYE (Sharesave), CSOP, EMI and unapproved share options follow different rules. The base cost can depend on what you paid to exercise, whether the scheme is tax-advantaged and how much was charged to income tax. HMRC's HS287 helpsheet covers capital gains tax on employee share schemes. Restricted securities and periods when you were not UK resident can also change the figures.

FiscalFox's automatic handling covers RSU vests and ESPP purchases from Schwab and Morgan Stanley exports. If you hold shares from another kind of scheme, check the acquisition figures before relying on the result.

How to do it with FiscalFox

1. Schwab: export the Equity Awards transaction history as a CSV covering every year you have held the shares. If you also sold or moved shares in a Schwab brokerage account, add that account's transaction CSV. See the Schwab guide.
2. Morgan Stanley at Work (StockPlan Connect): export Purchase History, ESPP Sales and, for supported stock units, the Releases Report. Sell-to-cover sales are not in the Releases Report, so add them from your trade confirmations. See the Morgan Stanley guide.
3. Upload the files to the free calculator, along with any other broker where you hold the same shares. FiscalFox books each vest and ESPP purchase at its market value, applies the same-day, 30-day and Section 104 rules in pounds, and converts each amount at its own date's rate.
4. Check the workings for each sale, then use the figures for the capital gains pages of your return. Our SA108 guide shows where they go.