US and UK tax on RSUs depends on where you worked between the grant and vest dates, not simply where you live when the shares vest. Both countries can tax the same award, so the grant-to-vest workday split decides how much each country is entitled to, and foreign tax credits under the US/UK treaty stop the same income being taxed twice. For senior employees and founders moving between the two countries, mishandling this is one of the most expensive mistakes in cross-border tax.
This guide explains how restricted stock units (RSUs) and stock options are taxed in each country, why the sourcing is done by workdays over the vesting period, how the foreign tax credit and treaty prevent double taxation, and the 'trailing liability' that follows you when you move mid-vest. It is written for high-net-worth, internationally mobile executives — the person granted equity by a US employer who is now UK-resident, or vice versa.
Key takeaways
- RSUs are generally taxed as ordinary employment income at vest, in both the US and UK, on the market value of the shares that vest.
- Where you worked between grant and vest — not where you live at vesting — drives how the income is sourced between the two countries.
- The US sources the award to US workdays in the vesting period; the UK apportions to UK workdays; the overlap is relieved by foreign tax credits under the US/UK treaty.
- US federal supplemental wage withholding is 22% up to $1 million and 37% above it — often far below a UK top rate of 45%, so extra tax is frequently owed on top.
- Moving between the US and UK part-way through a vesting period creates a 'trailing' tax liability in the country you left, for the portion earned there.
How RSUs are taxed in the US
A restricted stock unit is a promise to deliver shares once vesting conditions (usually time and continued employment) are met. In the US, an RSU is generally taxed as ordinary compensation income when it vests, on the fair market value of the shares delivered. That amount is added to your Form W-2 wages, and the employer withholds tax — federal income tax at the supplemental wage rate, plus Social Security and Medicare where applicable. The IRS guidance on stock options and equity pay is a useful starting point, and the federal supplemental withholding rate is 22% up to $1 million of such wages in the year and 37% on the excess.
After vesting, your cost basis in the shares equals the value already taxed as income. Any later gain or loss when you sell is a capital gain or loss — short-term (ordinary rates) if held a year or less, long-term (preferential rates) if held longer. The critical point for cross-border employees is that the vesting-date income and the later capital gain are two separate events with two separate sourcing analyses.
How RSUs are taxed in the UK
The UK reaches broadly the same place by a different route. RSUs are 'employment-related securities' under the UK rules, and for a UK-resident employee the value of the shares at vest is taxed as employment income, collected through PAYE, with National Insurance contributions usually also due. For an additional-rate taxpayer the income tax rate is 45% (on income above £125,140, a threshold frozen for several years), on top of employee National Insurance — a materially higher headline rate than the US 22% supplemental withholding. HMRC's overview of tax on employee share schemes is the starting point.
Because the UK top rate so often exceeds what the US employer withholds, a US-employer RSU vesting for a UK-resident employee frequently produces a UK tax bill well above the US tax already paid. The mechanics of clearing that gap — and making sure you are not taxed twice — depend on how the income is split between the two countries.
The cross-border problem: sourcing RSUs by workdays
Here is the heart of it. Both countries agree an RSU is taxed at vest, but each only wants to tax the portion 'earned' in its territory. Because an RSU is compensation for the whole period from grant to vest, that period is the measuring stick. The income is apportioned by workdays: the fraction of your workdays during the grant-to-vest period spent in each country determines how much of the award that country can tax.
So if you were granted RSUs while working in New York, then moved to London 18 months into a 3-year vest, roughly half the award is US-source and half UK-source. The US taxes its half (and continues to, even after you leave — this is the trailing liability). The UK taxes the portion attributable to UK workdays, and typically the whole amount if you are UK-resident and the shares vest while you are here, subject to relief. Getting the day count right, in both countries' currencies and tax years, is where cross-border equity work is won or lost. The same day-counting discipline underlies our guide to the Substantial Presence Test and US residency.
Avoiding double taxation: foreign tax credits and the treaty
When the same slice of RSU income is taxed by both countries, the US/UK double tax treaty and each country's foreign tax credit rules stop it being taxed twice. In broad terms, the country of residence gives credit for tax paid to the country of source on the same income, so you end up paying roughly the higher of the two rates overall rather than the sum of both. For a UK-resident with a US-source vesting, the UK typically gives credit for the US tax on the US-source portion; for a US person, foreign tax credits on the UK tax paid are claimed on the US return.
The practical difficulty is timing and matching. The two countries have different tax years (the US calendar year versus the UK year to 5 April), different rules on when income arises, and different definitions of what is 'the same' income — so credits can fall in the wrong year or be restricted. This is the same machinery, and the same pitfalls, we cover in foreign tax credit versus the FEIE, and it is why cross-border equity almost always needs both a US and a UK return prepared together rather than in isolation.
Stock options: NSOs, ISOs and the UK view
Options add another layer. In the US, non-qualified stock options (NSOs) are taxed as ordinary income on exercise, on the spread between the exercise price and the market value — again sourced over the grant-to-vest (or grant-to-exercise) period for cross-border purposes. Incentive stock options (ISOs) are more favourable for US tax but the bargain element is an adjustment for the alternative minimum tax (AMT), which frequently surprises employees who exercise and hold. The IRS sets out the ISO/NSO distinction in its equity compensation guidance.
The UK does not recognise the US ISO/NSO distinction. Most US options are treated as unapproved (non-tax-advantaged) options in the UK, taxed as employment income on exercise on the spread, with the cross-border portion apportioned by workdays in the same way as RSUs. A US ISO therefore gets no special UK treatment — so an employee optimising purely for US ISO benefits can be caught out on the UK side. Options and RSUs granted before a move need to be reviewed individually, because their grant, vest and exercise dates each fall in different places on your relocation timeline.
Trailing liabilities when you move
The rule that most often generates unexpected bills is the trailing liability. When you leave one country part-way through a vesting period, that country does not lose its claim to the portion earned while you worked there. A US employee who moves to London with unvested RSUs will still owe US tax on the US-workday portion when those RSUs later vest — even though they are now UK-resident and the US employer may no longer be withholding. The UK, meanwhile, taxes the UK-workday portion. Both filings have to be made, and the credits claimed, in the right years.
This is why relocating executives should map every outstanding grant before they move: grant date, vest schedule, exercise window, and the workday split each will produce. Planning the timing of a move around large vesting cliffs, and coordinating employer withholding on both sides, can materially change the net result. It sits naturally alongside the wider planning in pre-immigration and pre-move tax planning.
How TaxStone helps
TaxStone prepares US and UK returns together for internationally mobile executives and founders with equity compensation — reconstructing the grant-to-vest workday split, sourcing each RSU and option correctly between the two countries, and claiming the treaty foreign tax credits so the same income is never taxed twice. We model the trailing liabilities before you move, coordinate with employer payroll on both sides, and make sure ISO, NSO and RSU grants are handled on their own facts rather than a one-size-fits-all rule. If you hold cross-border equity and want the numbers right before your next vest, book a consultation with TaxStone.
