RSU vs RSA: What's the difference? UK guide

Disclaimer: This information in this article is for general informational purposes only and does not constitute financial, tax, or legal advice. See full disclaimer.

Just started at a UK company, or comparing job offers? Alongside salary, you may also want to think about employee benefits.

One popular type of benefit in the UK involves awarding employees with company shares, but there are a few different types of scheme.

This guide looks at two of these - RSUs and RSAs - and explains the key differences between them. Let’s start with a brief introduction on what each type of benefit is and how it works.

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What is an RSU?

An RSU is a Restricted Stock Unit, and is a form of employee compensation or benefit issued by a company. It’s essentially a guarantee by the employer to issue you with shares in the future, as long as certain predefined conditions are met.

For example, they may be granted in line with key events such as 10 years service, on promotion or when performance targets are met.

RSUs are commonly used to attract and retain talent. They might be offered when you join the company, awarded annually or given when performance or company milestones are achieved.

There are two key dates you need to know about as an employee. These are the grant date and the vesting date.

The promise of shares is given to you on the grant date, but they don’t actually have any cash or monetary value yet.

This only happens at the end of a vesting period, after which the RSUs convert into shares on the vesting date. They become yours, and you can choose whether to sell your shares or hang on to them.

The key thing to note is that RSUs don’t have any cash or monetary value at the time they’re granted. After a set period of time known as a ‘vesting period’, the RSU will convert into actual shares which you can then keep or sell.

What is an RSA?

An RSA is a Restricted Stock Award. It’s another type of employee compensation where staff are granted company stock directly. However, they only receive restricted stock, which means that it can’t be freely traded or transferred until after a vesting period has elapsed. After this time, the employee may earn full rights over the stock, and can sell it if they wish.

RSAs are a popular choice of employee benefit issued by startups, where the value of stock is initially quite low. The company can use the benefit to attract and retain the talent it needs, with the promise of future returns for the employee. Crucially, the company doesn’t give too much valuable stock away.

Another important point to note with RSAs is that the stock isn’t always granted free of charge. Employees may need to buy the shares at the time of granting, usually at a fair market value price (or discounted price, depending on the company’s policies).

RSU vs RSA: What's the difference?

Here’s a roundup of all the key differences between RSAs and RSUs:

When the employee gets the stock

With RSAs, the employee becomes the owner of the stock immediately on the granting date, even if they need to wait until the vesting date to sell up and reap any returns.

With RSUs, no stock is transferred to the employee until the vesting period has ended. Until then, there’s only a contract between employer and employee, where the company promises to issue the shares once targets are met or milestones are reached as per the vesting schedule.

Purchase cost

Another key difference between RSUs and RSAs is in the purchase cost. RSUs are typically granted free of charge to the employee, as a reward from the company.

However, RSAs often require the employee to actually buy the stock, usually at a discounted price. It is optional, however, so the employee can choose whether or not to exercise their right to buy the stock when offered.

Voting rights and dividends

As RSAs mean that the employee immediately becomes the owner of the stock, this also means they have immediate voting rights and can receive dividends (in line with company policies).

With RSUs, the employee needs to wait until the vesting date to receive the stock along with any associated voting rights and dividends.

Tax

RSUs and RSAs are taxed in the UK in a similar way, which is this:

• When vested, the stock is treated as taxable income and is subject to UK income tax and National Insurance (NI)
• When stocks are sold, the profit you make on the transaction may be subject to Capital Gains Tax (CGT). Bear in mind that each person in the UK has a tax-free Annual Exempt Amount, so you’ll only pay CGT once you’ve exceeded that.

Tax can be extremely complicated, especially when it comes to investment instruments. So it’s strongly recommended to seek professional tax advice before entering into any transaction.

Which companies use them?

RSAs are popular with startups, because early-stage stock has a very low value and tax liability is minimal.

Public companies tend to use RSUs because their stock is highly valuable and liquid, which could create significant tax liabilities if stock was granted immediately.

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Key takeaways

• An RSU (Restricted Stock Unit) is an employer's promise to issue shares in the future once predefined conditions or tenure milestones are met, meaning the units hold no cash value on their initial grant date.
• An RSA (Restricted Stock Award) grants the employee actual company stock immediately on the grant date, though the shares remain restricted and cannot be freely traded or transferred until the vesting period has elapsed.
• RSUs are typically awarded to employees completely free of charge, whereas RSAs often require the employee to purchase the stock at the time of the grant, usually at a discounted price or fair market value.
• Employees holding RSAs receive immediate voting rights and dividend eligibility upon the grant date, while RSU holders do not receive voting rights or dividends until the units officially vest into actual shares.
• Both stock types face a similar tax structure in the UK, triggering Income Tax and National Insurance contributions upon vesting, followed by Capital Gains Tax (CGT) on any profits when the shares are eventually sold.
• RSAs are most commonly utilized by early-stage startups because the initial stock value is low, while mature or public companies prefer RSUs due to the high value and liquidity of their shares.