RSUs and the £100k Tax Trap: What Tech Workers Need to Know
All tax calculations in this guide use 2025/26 tax year rates and thresholds.
If you work in tech and receive Restricted Stock Units (RSUs) as part of your compensation, your vesting dates could be the most expensive days of your tax year. RSUs can unexpectedly push your income over £100,000, triggering the personal allowance taper and potentially costing you thousands in lost childcare support.
This guide explains how RSUs interact with UK tax thresholds, what you stand to lose, and practical strategies to protect your family's finances.
How RSUs Are Taxed in the UK
Unlike share options, RSUs are taxed at vesting, not when you sell. When your RSUs vest, the market value of the shares is added to your employment income for that tax year.
| Event | Tax Implication |
|---|---|
| Grant | No tax - you don't own the shares yet |
| Vesting | Income Tax + NICs on market value (via PAYE) |
| Sale | Capital Gains Tax on any gain above vesting price |
Your employer handles the income tax and National Insurance through PAYE, usually via "sell-to-cover" where some shares are automatically sold to pay the tax bill. But the key point for tax planning is that the full value at vesting counts as income for that tax year.
Why RSUs Create a £100k Problem
The UK tax system has a cliff edge at £100,000 of adjusted net income. Cross it, and you start losing your personal allowance at a rate of £1 for every £2 earned above £100k. This creates an effective 60% marginal tax rate between £100,000 and £125,140.
The Vesting Spike
RSUs often vest in large chunks - quarterly or annually. If you have a base salary near £100k and RSUs vest on top, you can easily spike over the threshold for that tax year.
Sarah's situation:
- Base salary: £85,000
- RSUs vesting in March: £25,000
- Total income for tax year: £110,000
Without any planning:
- Income Tax: £33,432
- National Insurance: £4,211
- Take-home pay: £72,357
- Personal allowance lost: £5,000 (extra tax: £2,000)
If she had stayed at £99,000:
- Income Tax: £27,032
- National Insurance: £3,991
- Take-home pay: £67,977
The £11,000 extra income only increased her take-home by £4,380 - an effective 60% tax rate on the portion between £100k and £110k.
What You Lose Above £100k
The tax hit is painful, but for parents with young children, the childcare impact can be even worse:
| Benefit | Annual Value (approx.) | How It's Lost |
|---|---|---|
| Personal Allowance | Up to £5,028 extra tax | Tapered - £1 lost per £2 over £100k |
| Tax-Free Childcare | Up to £2,000 per child | Cliff edge - lost entirely above £100k |
| 30 Hours Free Childcare | ~£6,000 per child | Cliff edge - lost entirely above £100k |
| 15 Hours Extended | ~£3,000 per child | Cliff edge - lost entirely above £100k |
Unlike the personal allowance (which tapers gradually), childcare eligibility is all-or-nothing. At £99,999 you get full support. At £100,001 you get nothing. There is no gradual phase-out.
Scenario: Parent with two children under 5, earning £110,000 (including RSUs)
Tax impact:
- Lost personal allowance: £5,000 → extra tax of £2,000
Childcare impact:
- Lost Tax-Free Childcare: £4,000 (£2,000 × 2 children)
- Lost 30 hours free childcare: ~£12,000 (£6,000 × 2 children)
Total annual cost of being over £100k: up to £18,000
To replace this through extra earnings, you'd need roughly £30,000 more gross income (at a 40% tax rate). The £10,000 RSU vest could cost you far more than it's worth.
5 Strategies for Managing RSU Tax Impact
1. Maximise Pension Contributions Before Vesting
Pension contributions reduce your adjusted net income. If you know a large RSU vest is coming, increase your pension contributions to bring your ANI back under £100k.
The most effective method is salary sacrifice, which saves both income tax and National Insurance. With salary sacrifice, every £1 of pension contribution reduces your ANI by £1.
Starting position: £110,000 income (£85k salary + £25k RSUs)
Strategy: Contribute £10,500 via salary sacrifice pension
- Adjusted net income drops to: £99,500
- Income Tax: £27,232 (down from £33,432)
- Tax saved: £6,200
- Childcare eligibility: Restored
Result: You pay £10,500 into your pension, save £6,200 in tax, and keep potentially £16,000+ in childcare support. The pension contribution effectively costs you just £4,300 in reduced take-home pay.
2. Understand Your Vesting Schedule
Most tech companies vest RSUs on a predictable schedule - often quarterly after an initial cliff. Know your dates:
- When is your next vest?
- How much will it be worth (approximately)?
- Which UK tax year does it fall in?
If you have a large vest in early April, it falls in the new tax year. If it's in late March, it's in the current year. This can make a significant difference to your planning.
3. Plan Pension Contributions Around Vesting
Pension contributions must be made in the same tax year as the RSU income to reduce your ANI for that year. If your RSUs vest in March, you need to have made the pension contributions before April 5th.
If your RSUs vest on 20th March 2026, you have until 5th April 2026 to make pension contributions that reduce your 2025/26 adjusted net income. Contributions made after this date will apply to the following tax year and won't help with the current year's tax bill.
4. Use Gift Aid Donations
Charitable donations through Gift Aid also reduce your adjusted net income. The donation is "grossed up" by 25%, so an £800 donation counts as £1,000 reduction in ANI.
This won't be right for everyone, but if you're already planning charitable giving, timing it to coincide with a large RSU vest can provide tax benefits.
5. Talk to Your Employer
Some employers offer flexibility around RSU vesting or compensation structure. It's worth understanding:
- Can pension contributions be increased via salary sacrifice?
- Is there any flexibility on vesting dates?
- What other salary sacrifice schemes are available (cycle to work, EV schemes)?
RSUs and Childcare: The Double Hit
For parents of young children, the childcare cliff edge at £100k is often more significant than the tax impact. All of the following use adjusted net income as the threshold:
- Tax-Free Childcare: Government tops up childcare costs by 20% (up to £2,000/child/year)
- 30 hours free childcare: For working parents of 3-4 year olds
- 15 hours extended: For working parents of children aged 9 months to 2 years
If either parent has ANI over £100,000, the family loses eligibility for all of these. This means one RSU vest pushing one parent over the threshold affects the whole family's childcare support.
If you're currently receiving free childcare hours, your eligibility is reconfirmed periodically. If your income goes over £100k during a reconfirmation period, you may lose your code. There's typically a grace period, but don't rely on this - plan proactively.
Your RSU Tax Planning Checklist
Before each tax year, work through this checklist:
- ☐ Know your RSU vesting dates for the tax year
- ☐ Estimate the value of upcoming vests
- ☐ Calculate your expected adjusted net income (salary + RSUs - pension)
- ☐ If ANI will exceed £100k, calculate pension contribution needed to stay under
- ☐ Check pension annual allowance (£60,000) and carry forward from previous years
- ☐ Set up increased salary sacrifice pension if needed
- ☐ Review childcare eligibility codes and reconfirmation dates
- ☐ Consider timing of any other variable income (bonuses, side income)
Common Questions
When do I pay tax on RSUs?
At vesting, when you receive the shares. The market value at vesting is added to your employment income for that tax year. Your employer handles this via PAYE, usually by selling some shares to cover the tax ("sell-to-cover").
Do RSUs count towards the £100k threshold?
Yes. The value of RSUs at vesting is included in your total income, which feeds into your adjusted net income. This determines your personal allowance taper and childcare eligibility.
Can I defer RSU vesting to reduce tax?
Generally no - vesting is determined by your grant agreement and company policy. However, you can offset the tax impact with pension contributions in the same tax year. Some employers may offer flexibility on future grants, but existing vesting schedules are typically fixed.
What if my RSUs push me over £100k mid-year?
Your adjusted net income is calculated for the full tax year. If a March vest pushes you over, you can still make pension contributions before April 5th to reduce your ANI. The key is planning ahead - know your vest dates and have a strategy ready.
Should I sell RSUs immediately or hold?
This is an investment decision, not a tax decision. Selling vs holding doesn't affect your income tax bill (that's fixed at vesting). However, holding creates exposure to share price movements and potential capital gains tax later. Many financial advisers recommend selling and diversifying, but this depends on your personal circumstances.
How Our Calculator Helps
Our tax calculator lets you model RSU scenarios and see the impact on your:
- Adjusted net income and personal allowance
- Childcare eligibility (Tax-Free Childcare, 30 hours, 15 hours)
- Optimal pension contribution to escape the £100k trap
- Total tax savings from different strategies
Key Takeaways
- RSUs are taxed at vesting - the full market value counts as income for that tax year
- RSU vests can unexpectedly push you over £100k, triggering the 60% tax trap
- Parents face a double hit: tax increases plus total loss of childcare support above £100k
- Pension contributions (especially salary sacrifice) can reduce your ANI below £100k
- Contributions must be made in the same tax year as the RSU vest to be effective
- Know your vesting schedule and plan ahead - don't be caught by surprise
- Even if only one parent goes over £100k, the whole family loses childcare eligibility
Disclaimer
This article is for general information only and is not financial, tax, or legal advice. Rules can change and your circumstances matter. If you're unsure, consider speaking to a regulated adviser or accountant.