Navigating the tax implications of Restricted Stock Units (RSUs) and stock options during an Initial Public Offering (IPO) can be complex for UK residents. This concise guide provides five tax tips to optimise your financial outcomes, including repurchasing shares in an ISA and using interspousal exemptions, while explaining single vs. double trigger RSUs and sell-to-cover vs. net shares.
RSUs and Stock Options: Key Concepts
RSUs: Shares granted as compensation, vesting over time or at IPO, taxed as income upon vesting.
Single Trigger RSUs: Vest based on time (e.g., 25% yearly over 4 years), taxed at vesting.
Double Trigger RSUs: Vest upon meeting time-based and liquidity conditions, taxed only when both occur.
Sell-to-Cover: Sell enough shares to cover taxes (Income Tax + National Insurance), keeping the rest.
Net Shares: Company withholds shares to cover taxes, delivering remaining shares to you.
1. Identify Taxable Events
RSUs are taxed as employment income at vesting it’s important to identify if you’re shares are part of the single or double trigger tax scheme. A single trigger scheme will ensure that income tax would have been due at the point of vesting whilst those held on the double trigger scheme only become taxable at the point of a secondary trigger which is typically a liquidity event such as an IPO.
The ‘double trigger’ scheme is often favored with early stage companies as the sale of stock is not always easy to facilitate and price can fluctuate.
Tip: Consult a tax advisor as the increase in income in a single tax year can cause knock on effects to childcare benefits and reduce pension allowances.
2. Understand Tax Implications
Once the shares vest (either by single or double trigger) it’s important to understand our tax implications & if you’re employer is offering what is known as ‘net shares’. If they are providing you with the net shares this indicates that they are withholding an appropriate number of shares at the point of vest to cover any income tax liability that is due.
If your scheme is not providing the ‘net shares’ then you will need to budget for paying the income tax liability typically through the method known as ‘sell-to-cover’. This requires you to individually sell enough shares to cover Income Tax (up to 45%) and NICs (2% above Upper Earnings Limit in 2025).
Tip: Aim to sell shares at the point of vesting if you require the capital held here to meet tax liabilities. The value of the share can fall after the IPO and the income tax liability will not fall with this.
3. Repurchase Shares in an ISA / Tax Efficient Wrapper
After an IPO your companies stock will now be publicly listed & as such you will now have the ability to buy the stock and hold it in a stocks and shares ISA. Whilst it’s common that employees will like to have some metaphorical ‘skin in the game’ and keep hold of some stock as a cherished holding. We’d always encourage that this should be done in a tax efficient environment.
Tip: Act quickly post-IPO to stay within the ISA allowance & ensure that minimal taxable gains are made.
4. Manage Capital Gains Tax
For those who have been awarded shares on the single trigger basis they may still wish to now utilise the ISA strategy listed above but they will likely have gains that are taxable on the sale of any shares and will need to consider strategies for how best to dispose of stock.
Tip: Read our guide on managing capital gains tax on stock for the 25/26 tax year.
5. Maintain HMRC Compliance
Be aware that the vesting / sale of stock may be a trigger to complete a self assessment and there can be fines for incorrect or late filing.
Tip: Keep records of grant agreements, share prices, and tax payments. Use a tax professional to avoid HMRC penalties.
Disclaimer: This is not tax or financial advice. Consult a qualified professional for personalised guidance.
About the author
Louis is a regulated independent financial advisor with a diploma in financial planning from the Chartered Insurance Institute. He founded his own financial planning firm in 2019 & has specialised in helping high earning individuals on all personal financial matters.
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