Published 19 June 2026 · Updated 7 November 2026 · 3 min read
A single RSU vest or option exercise can be the largest tax event of your year in two countries at once. The rules differ on when income arises, what it is called, and how much of it each country can tax when the grant and the vest fall either side of a move.
RSUs
US. The market value at vesting is wages: on a W-2 from a US employer, or as foreign wages on Form 1040 from a UK employer. Gains after vesting are capital gains from the vesting date.
UK. The value at vesting is employment income under the employment-related securities rules, taxed through PAYE with employee Class 1 National Insurance (8%, 2% above the upper earnings limit) and, where the employer has an agreement to transfer it, the 15% employer NIC as well. Later gains are capital gains with the £3,000 annual exempt amount. A section 431 election can matter where shares carry restrictions.
Apportioning across a move
Where you worked in both countries between grant and vest, both tax authorities source the vesting income by workdays: UK workdays over total workdays is UK-source, and the US taxes a US citizen on all of it with credit for the UK tax on the UK-source part. US states can also claim the part earned while you were resident there. Getting the day counts right is what makes the credit line up.
Non-qualified stock options
Taxed at exercise on the spread in both countries, as employment income, with the same workday apportionment from grant to vest. Later gains are capital.
Incentive stock options
US: no regular tax at exercise (the spread is an alternative minimum tax item); a qualifying disposition (two years from grant, one from exercise) gives long-term capital gain on the whole gain.
UK: HMRC does not recognise ISO status; the spread at exercise is employment income with NIC. Result: UK tax at exercise with no US income in that year to credit it against, and US capital gains later with no UK tax to credit. Timing exercises and sales around residence changes is the main lever.
EMI options
The reverse mismatch. UK-approved EMI options are taxed only on sale, at capital gains rates (with Business Asset Disposal Relief where available). For US purposes they are ordinary options: the spread at exercise is wages. A US employee of a UK start-up pays US income tax at exercise and UK capital gains tax at sale, with limited credit matching.
ESPPs
Qualified US plans give favourable US treatment on a qualifying disposition; the UK taxes the discount as employment income at purchase. Non-qualified plans are taxed at purchase in both.
Where it goes
- US: wages on Form 1040; Schedule D and Form 8949 for sales; Form 1116 for the UK tax; Form 3921/3922 from the employer for ISOs/ESPPs; FBAR and Form 8938 if the shares sit in a non-US account.
- UK: SA102 employment pages for vesting and exercise income; SA108 for gains; the employer files the annual ERS return.
Frequently asked questions
Can the FEIE cover RSU income?
Vesting income for work performed in the UK while you qualify is foreign earned income and can fall within the exclusion, up to the limit. Option spreads and gains on sale are treated differently. In practice the Foreign Tax Credit usually handles equity better.
My shares are in a US brokerage and I live in the UK. Who taxes the sale?
The UK, as your country of residence, and the US, as a citizen. UK capital gains tax is credited against the US tax under the treaty's sourcing rules for gains.
Written by the US UK Expat Tax advisory team. Last reviewed 7 November 2026 · Figures relate to the 2025 / 2025-26 tax year unless stated.
Primary sources checked
General information, not personal tax advice. Rules and thresholds change; we confirm the position for your facts before any work.