Tax Efficiency around RSUs
Posted: January 12th, 2022, 9:58 pm
Hello,
Trying to understand how to best avoid the impact of tax on some upcoming RSUs. Would appreciate if any smart minds could critique and contribute ideas to my current strategy.
Currently earn around 120k, so am salary sacrificing into my pension to bring salary down as much as possible to get out of the tax rate between 100 and 125 since personal allowance is lost here. Impact of this is that tax rate stays at 40% (instead of scaling towards 60%). Currenty bringing my gross salary down to 80k via this method.
Reading up on RSUs, I understand that from a tax perspective, RSUs are treated like commission, or any other additional income in the UK: taxed at your marginal rate.
They are also subject to capital gains tax, so it makes sense to sell on vesting day to avoid any future CGT. This also avoids too much risk (I.e. job and significant investment amount) in a single place. .
RSUs also get impacted by national insurance contributions of 13.8%.
I think the only way to get some of that tax back is to make a contribution into the personal pension that matches the original RSU amount of 20k, gaining 20% tax relief at source, and then claiming the additiona higher rate back via self assessment.
Maths below. I think via this method I'll lose around 50% of the pre-tax RSU value, but then be able to get some of this (8k) back via relief at source, and self-assessment. Does that look right to you?
Trying to understand how to best avoid the impact of tax on some upcoming RSUs. Would appreciate if any smart minds could critique and contribute ideas to my current strategy.
Currently earn around 120k, so am salary sacrificing into my pension to bring salary down as much as possible to get out of the tax rate between 100 and 125 since personal allowance is lost here. Impact of this is that tax rate stays at 40% (instead of scaling towards 60%). Currenty bringing my gross salary down to 80k via this method.
Reading up on RSUs, I understand that from a tax perspective, RSUs are treated like commission, or any other additional income in the UK: taxed at your marginal rate.
They are also subject to capital gains tax, so it makes sense to sell on vesting day to avoid any future CGT. This also avoids too much risk (I.e. job and significant investment amount) in a single place. .
RSUs also get impacted by national insurance contributions of 13.8%.
I think the only way to get some of that tax back is to make a contribution into the personal pension that matches the original RSU amount of 20k, gaining 20% tax relief at source, and then claiming the additiona higher rate back via self assessment.
Maths below. I think via this method I'll lose around 50% of the pre-tax RSU value, but then be able to get some of this (8k) back via relief at source, and self-assessment. Does that look right to you?