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Just joined a new company, or weighing up job offers? One benefit you might need to know about as a UK employee are restricted stock units (RSUs).
Some companies offer their employees stock when they join the business, or as an annual bonus based on company performance. But what actually are RSUs and how do they work in the UK?
Find out everything you need to know here in this helpful guide. We’ll give you some examples of RSUs, run through the pros and cons and answer a few FAQs about them too.
And if you’re looking to help grow your income, check out Wise Interest. You can earn returns on GBP, USD and EUR by opening a Wise account and investing in a fund that holds government-guaranteed assets. Capital at risk.
Capital at risk. Growth not guaranteed. Wise Assets UK Ltd is authorised and regulated by the Financial Conduct Authority with registration number 839689. When facilitating access to Wise investment products, Wise Payments Ltd acts as an Introducer Appointed Representative of Wise Assets UK Ltd. Please be aware that we do not offer investment advice, and you may be liable for taxes on any earnings. If you’re uncertain, we urge you to seek professional advice. To find out more about the Funds, visit our website.
When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in. Tax treatment depends on your individual circumstances and may be subject to future change. The content of this article is provided for informational purposes only and is not intended to be, nor does it constitute, any form of personal advice.
Investments in a currency other than GBP are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in GBP terms. You could lose money in GBP even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.
Restricted Stock Units (RSUs) are a kind of employee compensation or benefit issued by a company.
A company may want to offer them as an incentive for new employees, helping them secure the best talent. Or they may grant RSUs to staff on different occasions, such as on an annual basis, to reward long service or when the company reaches a particular milestone or performance-related target.
The key thing to note is that RSUs don’t have monetary value at the time they’re granted. After a set period of time known as a ‘vesting period’, the RSU will convert to actual stock which can be sold for a cash value.
To give you an idea of how RSUs work, let’s run through a quick example.1
Let’s say you join a technology company as a new employee. You’re given 100 RSUs, which have a vesting period of 4 years. But every year, 25% of the RSUs are vested and turned into stock - which means you don’t have to wait until the end of the 4 year period to receive any rewards.You’ll get 25 shares in the first year, 25 in the second and so on. You might even receive new RSUs every year or at various other points during your career with the company. These will also vest and turn into stock at staggered intervals.
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Here’s a quick look at the main advantages and drawbacks of RSUs as a form of employee compensation.
RSUs are awarded to an employee on what is known as a grant date. This may be tied to an event such as joining a company, for each year the employee stays at the company, promotions or performance milestones.
The employee is usually given a distribution or vesting schedule, which sets out the timeline for when RSUs will be granted and vested.
On each vesting date, the predetermined number of RSUs will be converted to shares in the company. It’s then up to the employee whether they keep or sell their shares.
As the recipient of RSUs, you might want to take steps to manage them - so that you get the best from your employee benefits.
The first step is to request your vesting/distribution schedule from your employer, along with any other details of the company’s RSU policy.
It’s also a good idea to seek financial advice, particularly in relation to your tax obligations when the RSUs are vested.
The term may be a little unfamiliar, but the vesting process is actually quite simple. It just means the process by which RSUs turn into stock, and the employee gains ownership of them.
Vesting may happen according to a schedule, or it may be tied to certain conditions or performance milestones.
RSUs only create tax liability when they are vested, not when they’re granted.
When they become stock, they’re taxed in a similar way to your salary. You’ll need to pay income tax and National Insurance (NI), and perhaps capital gains tax if you decide to hold onto your shares rather than sell them.1
The exact amount of tax you’ll pay on RSUs depends on your circumstances, and how your employer has set up its RSU scheme.
Looking for an alternative way to help grow your overall income? Check out Wise Interest.
Learn more about Wise Interest
Open a Wise account online and switch on Interest to earn returns - while still having full access to your money. With a Wise account you can earn returns on GBP, USD and EUR by opening a Wise account and investing in a fund that holds government-guaranteed assets. Capital at risk.
Capital at risk. Growth not guaranteed. Wise Assets UK Ltd is authorised and regulated by the Financial Conduct Authority with registration number 839689. When facilitating access to Wise investment products, Wise Payments Ltd acts as an Introducer Appointed Representative of Wise Assets UK Ltd. Please be aware that we do not offer investment advice, and you may be liable for taxes on any earnings. If you’re uncertain, we urge you to seek professional advice. To find out more about the Funds, visit our website.
What’s more, you can use your account to manage your money in 40+ currencies and send worldwide transfers for low fees* and mid-market exchange rates.
When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in. Tax treatment depends on your individual circumstances and may be subject to future change. The content of this article is provided for informational purposes only and is not intended to be, nor does it constitute, any form of personal advice.
Investments in a currency other than GBP are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in GBP terms. You could lose money in GBP even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.
RSUs grant the employee the stock directly, although a vesting period is common until the employee actually owns the stock.
Stock options simply give the employee the right to buy shares in the company, and usually at a specific price and before a certain date.
Yes, RSUs are taxed as income when they vest under UK tax laws.1
It is possible for RSUs to be counted as income in order to secure a mortgage, but it’s not common in the UK. You might find that not a lot of lenders accept them.3
RSUs may carry voting rights once they are vested, but not before.4
Sources used:
1. Frazer James - tech employee’s guide to restricted stock units
2. Indeed - example of an RSU
3. Cleerly - how restricted stock units work with mortgages
4. Investopedia - info on voting and RSUs
Sources last checked on date: 15-Oct-2024
*Please see terms of use and product availability for your region or visit Wise fees and pricing for the most up to date pricing and fee information.
This publication is provided for general information purposes and does not constitute legal, tax or other professional advice from Wise Payments Limited or its subsidiaries and its affiliates, and it is not intended as a substitute for obtaining advice from a financial advisor or any other professional.
We make no representations, warranties or guarantees, whether expressed or implied, that the content in the publication is accurate, complete or up to date.
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