Tax Efficiency around RSUs

[jakinvegas]

Hello,

Trying to understand how to best avoid the impact of tax on some upcoming RSUs. Would appreciate if any smart minds could critique and contribute ideas to my current strategy.

Currently earn around 120k, so am salary sacrificing into my pension to bring salary down as much as possible to get out of the tax rate between 100 and 125 since personal allowance is lost here. Impact of this is that tax rate stays at 40% (instead of scaling towards 60%). Currenty bringing my gross salary down to 80k via this method.

Reading up on RSUs, I understand that from a tax perspective, RSUs are treated like commission, or any other additional income in the UK: taxed at your marginal rate.

They are also subject to capital gains tax, so it makes sense to sell on vesting day to avoid any future CGT. This also avoids too much risk (I.e. job and significant investment amount) in a single place. .

RSUs also get impacted by national insurance contributions of 13.8%.

I think the only way to get some of that tax back is to make a contribution into the personal pension that matches the original RSU amount of 20k, gaining 20% tax relief at source, and then claiming the additiona higher rate back via self assessment.

Maths below. I think via this method I'll lose around 50% of the pre-tax RSU value, but then be able to get some of this (8k) back via relief at source, and self-assessment. Does that look right to you?

[pochisoldi]

Might help if you stated what an RSU is.
I, for one, have never come across the term.

[bluedonkey]

Restricted Stock Unit in the shares of the employer. Typically these are allocated provisionally and then vest after say three years if the employee is still around, for instance. When vested, this triggers the value to be treated as employment income.

OP: why are you using employers NI rate of 13.8%? Your marginal NI rate is 2%.

[TedSwippet]

OP: why are you using employers NI rate of 13.8%? Your marginal NI rate is 2%.

Employers may transfer the employer NI liability to employees. Some make this a condition of granting options in the first place.

https://www.gov.uk/guidance/transfer-em ... -employees

As an employer, you can legally agree with employees to transfer your National Insurance contributions liability to them on certain shares and share options. This is known as a joint National Insurance contributions (NICs) election.

By transferring National Insurance you won’t have unpredictable and uncapped National Insurance payments when there is a chargeable event.

[eisman]

Note that the rates of NI for both employers and employees increases by 1.25% with effect from 6 April 2022. I would assume this increase applies to taxable share option gains, so the calculations in the OP's example above would only apply to chargeable events before 6 April 2022.

The OP commented:

They are also subject to capital gains tax, so it makes sense to sell on vesting day to avoid any future CGT.

You may not be aware that the cost of the shares for future CGT purposes will include the amount that counts as employment income (£20,000* in the example above). You would therefore only be liable to CGT on the value increase after vesting day.

(*) Income tax relief allowed for the employee's payment of the employers' NI charge does not reduce the base cost for CGT purposes. See:
https://www.gov.uk/hmrc-internal-manual ... al/cg56392

Whilst I accept the OP's concerns over the risk of holding shares in one's employer, bear in mind that capital gains on such investments benefit from an annual exemption (currently £12,300) and a tax rate of only 20% (for higher and additional rate taxpayers).

Eisman