RSU Tax US and UK: Vesting, Sourcing, Credits and Selling Shares

RSU tax US and UK: an introduction

RSU tax US and UK rules start from the same point: both countries normally tax restricted stock units as employment income when they vest. The difficulty comes when you move between the two countries before a grant vests. Then each country taxes a share of the same income, and the credits have to line up grant by grant.

This article explains when each country charges tax, how a move splits the income and how the credits work. It also covers what happens when you later sell the shares. Our guide to US and UK tax for founders and executives covers stock options and carried interest in more depth.

What RSU tax US and UK rules cover

A restricted stock unit is your employer's promise to give you shares after vesting. Usually the condition is staying employed for a set time, and sometimes there are performance targets as well. HMRC's Employment Related Securities Manual at ERSM20192 calls an RSU award an agreement to issue shares at vest. It adds that no shares are delivered until you meet the vesting schedule. Importantly, HMRC says the facts of an award, not its label, decide the tax treatment.

Why the move matters

Vesting is the point when your right to the shares becomes unconditional. Grants often vest over three or four years. Consequently, many people relocate with several grants part-way through their vesting periods. Each of those grants then has a US share and a UK share. Under RSU tax US and UK rules, each needs its own calculation.

When are RSUs taxed in the US and the UK?

Both countries tax RSUs when the shares are delivered at vest, on their market value at that time. Neither country taxes the grant itself.

The US charge at vest

The US rule is in section 83 of the Internal Revenue Code. It taxes property received for services once it is transferable or no longer at risk of forfeiture. The amount is the market value less anything you paid. However, an RSU is not property until the shares arrive. The Treasury regulation on section 83 definitions excludes an unfunded, unsecured promise of future property. Therefore, the US taxes delivery at vest. A US employer reports the value as wages on your Form W-2.

The UK charge at vest

The UK rule is similar. ERSM20192 says RSU shares delivered from 6 April 2016 are taxed under Part 7, Chapter 5 of the 2003 Act. In plain terms, the market value of the shares at vest is employment income. Before that date, HMRC normally taxed them as money's worth. On timing, therefore, RSU tax US and UK rules agree. Either way, the grant itself is not taxed.

No section 83(b) election for RSUs

A section 83(b) election is a choice to be taxed on restricted property at receipt. Section 83(b) requires the election within 30 days of the transfer. However, it only works for actual property. Because an RSU is an unfunded promise, there is nothing to elect on at grant. As a result, RSU tax US and UK rules give you no way to bring the charge forward.

How does UK payroll deal with RSUs?

If the shares are readily convertible assets, your employer runs PAYE and National Insurance on the vest value. Shares in listed companies usually qualify.

Readily convertible assets

A readily convertible asset is something you can easily sell for cash, such as listed shares. HMRC's manual on PAYE and National Insurance for securities says employment income from securities is generally subject to both. Shares listed in the US usually count. So a US parent's RSUs paid to a UK employee go through UK payroll. Often the plan sells enough shares at vest to cover the tax. By contrast, shares in a private company with no market may not be readily convertible. In that case, you pay the income tax through Self Assessment instead.

National Insurance and withholding mismatches

National Insurance is the UK's social security charge on earnings. It is due on RSUs that are readily convertible assets, from both you and your employer. However, it is a social security contribution, not income tax. In our experience, withholding is often wrong for people who move. For example, US payroll may withhold on the whole vest while UK payroll withholds on the UK share. Consequently, tax is paid twice at source and recovered later through the returns.

How is RSU income split when you move between the US and UK?

Both countries split RSU income by workdays over the period from grant to vest. Each country then taxes the part earned while you worked there, subject to its own residence rules.

The UK rule for internationally mobile employees

The rules sit in Part 2, Chapter 5B of ITEPA 2003. That chapter covers securities income of internationally mobile employees. It treats the income as accruing evenly over a relevant period. For restricted securities, the period runs from acquisition to the chargeable event. Income for days in a non-resident year, or the overseas part of a split year, is generally outside UK tax.

HMRC's guidance at ERSM163120 adds the treaty view. It treats restricted and forfeitable securities as earned from award until the restriction lifts. For RSUs, that is in practice grant to vest. Furthermore, it notes the US-UK treaty uses grant to exercise for share options, so options differ.

The US sourcing rule

Sourcing is the rule that decides which country an item of income comes from. The Treasury regulation on sourcing compensation sources pay for work in several countries on a time basis, by workdays. For pay earned over several years, it uses the whole period the pay relates to. For stock options, it names grant to vesting as that period. Accordingly, RSUs are usually sourced over grant to vest in the same way.

Keeping a workday record

A workday record is your diary of where you worked on each day. You need one for every year in which you hold unvested grants. Both returns rely on it, because RSU tax US and UK sourcing starts from those days. Moreover, employers' mobility trackers are not always accurate, so keep your own record of travel days.

Overseas Workday Relief for new arrivals

Overseas Workday Relief is a UK relief for overseas work in your first years of residence. HMRC's guidance at EIM43555 says that from 6 April 2025 it follows the new foreign income and gains regime. It covers employment-related securities income, needs an election and a claim on your return, and has a financial limit. Therefore, a new arrival who travels for work should check it before each vest.

How do foreign tax credits work for RSUs?

A US citizen in the UK usually claims a credit for UK tax on the UK-source part of each vest. The US-source part is taxed only by the US, so it carries no UK credit.

Form 1116 and the general category

A foreign tax credit is a cut in US tax for foreign income tax on the same income. You claim it on Form 1116. The Form 1116 instructions place wages and salary of an employee in the general category. They also confirm compensation is sourced on a time basis. RSU income is employment income, so it goes in the general category too. Additionally, unused credits can be carried back one year and forward ten.

Matching credits grant by grant

Each grant has its own grant date, vest date and workday split. Therefore, you work out the foreign-source part of each vest separately. The UK tax you match against it is the UK tax on that same vest. In our experience, most errors come from using a single annual percentage for every grant. Good RSU tax US and UK work keeps a schedule for each grant and each vest.

Different tax years

The UK tax year runs from 6 April to 5 April, while the US uses the calendar year. A vest in February falls in one UK tax year and the next US year's return. Consequently, the credit timing needs care when you prepare your RSU tax US and UK returns. The Form 1116 instructions explain the cash and accrual methods and the exchange rates each uses.

The foreign earned income exclusion

The foreign earned income exclusion lets qualifying Americans abroad exclude earnings up to an indexed annual limit. The IRS page on the exclusion sets out who qualifies. However, IRS Publication 54 says you cannot take a credit for any item related to excluded amounts. It also notes that pay received a year after you earned it may mean amending the earlier return. UK tax rates are usually higher than US rates, so the credit often works better. We model RSU tax US and UK returns both ways before choosing.

What happens when you sell the shares?

After vest, any later rise or fall in value is a capital gain or loss. Each country starts from its own cost and uses its own currency, so the gains rarely match.

Your US cost and specific identification

Your US basis is the amount taxed as income, plus anything paid, under the section 83 basis regulation. That is usually the dollar value at vest. The US also lets you choose which lot you sell. The Treasury regulation on share identification applies first in, first out. However, you can identify specific shares to your broker when you sell.

Your UK cost and share pooling

The UK does not let you pick lots. HMRC's helpsheet HS284 on shares and Capital Gains Tax matches sales with same-day purchases first. Next come shares bought in the following 30 days. Everything else goes into a section 104 pool at average cost. Moreover, HMRC's HS287 helpsheet on employee share schemes explains how costs build up for shares from employment. Where only part of a vest was taxed in the UK, the UK base cost needs particular care.

Currency

The UK measures gains in sterling. HMRC's Capital Gains Manual at CG78310 converts cost at the acquisition-date rate. Proceeds use the disposal-date rate. The US measures the same sale in dollars. As a result, a share that is flat in dollars can show a UK gain if the pound has fallen. In that case, there may be UK tax with no matching US gain to credit it against.

Sell-to-cover sales

Sell-to-cover is when the plan sells some vested shares at once to pay the tax. RSU tax US and UK reporting must still include these sales. Those sales usually happen on the vest day, so the gain or loss is small. Nevertheless, they are still disposals in both countries. In the UK, the same-day rule matches them with the shares acquired that day.

An example: an RSU grant that spans a move

Consider a typical case, which is an illustration, not a real client. Ethan is a US citizen working for a US listed company. He receives an RSU grant on 1 January 2025 while working in the US. He moves to London on 1 January 2026 with the same group. The grant vests on 31 December 2026. The shares are worth $100,000 at vest.

Ethan worked half his grant-to-vest workdays in each country. So the UK taxes half the vest as employment income, converted to sterling, through UK payroll. The vest falls in the UK tax year 2026 to 2027. Ethan was not UK resident in 2025, so the US half is outside UK tax.

Ethan's US return

On his 2026 US return, Ethan reports the full $100,000, because the US taxes citizens on worldwide income. Half is US-source and half is foreign-source. He then claims a credit on Form 1116, in the general category, for the UK tax on the foreign half. US tax on the US half stays payable, and state tax may also apply to it. Finally, his share basis is $100,000 for US purposes.

When Ethan sells

A year later, Ethan sells the shares. His US gain is the dollar proceeds less his dollar basis. His UK gain uses sterling values and his section 104 pool. The two gains differ, so we prepare both computations and match the credit to the gain both countries actually tax. In short, this is RSU tax US and UK in practice: one award, two calculations, one set of matching returns.

How US UK Tax Experts can help

We prepare your US and UK returns from one file, so the two agree. First, we build a schedule for every grant, with grant date, vest date, value and workday split. Next, we work out the UK-source and US-source part of each vest. Then we match the UK tax to the right US credit, and reconcile any payroll over-withholding. Our treaty relief service covers the credit claims. In addition, our guide to the US-UK double taxation treaty explains the wider rules. Our article on the US-UK tax accountant for founders covers related equity questions.

We do not advise on whether to hold or sell your shares. However, we can model your RSU tax US and UK returns both ways first. For larger portfolios, see our page on US-UK high net worth tax services.

Conclusion

In summary, RSU tax US and UK rules agree on timing: both countries tax restricted stock units at vest as employment income. A move splits each grant by workdays from grant to vest. The UK taxes its share through payroll. The US taxes citizens on everything, with a credit for the UK part. Section 83(b) does not apply to RSUs. Finally, when you sell, each country uses its own cost, matching rules and currency, so expect two different gains.

Contact us

Do you hold RSUs and have moved, or plan to move, between the US and UK? Email us at hello@usuktaxexperts.com, or tell us about your grants through our contact page. We reply within one working day with what we would need from you.