The headline numbers — naive case
Base salary £100,000, RSU grants vesting £30,000 in the year, no salary sacrifice. Total taxable income for the year: £130,000. Take-home: approximately £80,058 a year — about £6,671 a month.
| Component | Annual |
|---|---|
| Base salary | £100,000 |
| RSU vesting (taxed as income via PAYE at vest) | £30,000 |
| Total taxable income | £130,000 |
| Personal allowance (fully tapered above £125,140 — partly tapered here) | £0 |
| Income tax (62% effective on £25,140 in the trap, 40% above) | −£45,332 |
| Employee National Insurance | −£4,611 |
| Take-home (no sacrifice) | £80,058 |
Effective deduction: 38.4% of total compensation. The personal allowance is partially tapered because total income is between £100,000 and £125,140 — meaning every additional pound earned in this band costs 62% in tax+NI.
How RSUs are actually taxed in the UK
Restricted Stock Units (RSUs) are taxed at vest, not at grant or sale. The mechanics:
- At grant: no tax. Just a promise of future shares.
- At vest: the market value of vested shares is added to your taxable income for that year. Your employer reports this as employment income on the payslip and deducts PAYE income tax + NI through the payroll. Most US-headquartered employers operate "sell-to-cover" — automatically selling enough vested shares at the moment of vest to cover the estimated PAYE liability.
- At sale: any gain (or loss) after vest is treated as Capital Gains. The cost basis is the vest-day market value, not the grant value. So if 100 shares vested at £100 each (£10,000 added to your income, taxed via PAYE) and you sell six months later at £130 each, the £3,000 gain is a CGT event — using your £3,000 annual exempt amount, the rest taxed at 18% / 24%.
Two complications most engineers miss:
- Sell-to-cover is usually wrong for higher earners. The default sell-to-cover ratio is calibrated to a basic-rate or low-higher-rate taxpayer (often 30-37% withholding). For someone in the 60% trap, this under-withholds — leaving a Self Assessment shortfall in January that surprises engineers who didn't expect it. Some employers offer "supplementary withholding" or you can elect to file Self Assessment and ringfence cash to top up.
- RSUs vesting in the same tax year as a base salary increase compound the trap. A £10,000 base raise + £30,000 RSU vest can push £40,000 of income into the 62% effective band. Almost all the raise's nominal value is consumed by the tax bite.
The single move that fixes most of this — pension salary sacrifice
Salary sacrifice into a pension is the most powerful UK tax-planning tool available to high-earning engineers. The mechanics:
- You contractually give up part of your base salary; employer pays it directly into your pension.
- The sacrificed amount avoids income tax (40-60% in this band), employee NI (2%), and employer NI (15% — most major tech employers share this saving back into your pension).
- Sacrificing £20,000 of base salary at £100k base means about £8,000 reduction in take-home, but £23,000 added to your pension (employer NI passthrough included).
The 60% trap reframes the maths even more sharply: any sacrifice that pulls "adjusted net income" below £100,000 recovers the personal allowance, lowering the effective tax rate on retained pay. £25,140 of sacrifice (the size of the trap) saves 62% × £25,140 = £15,587 of tax — meaning the gross sacrifice costs about £9,500 of net pay for £25,140 in pension.
The salary sacrifice calculator models the full stack. The adjusted net income calculator shows exactly how much sacrifice gets you below £100,000.
The four decisions for tech engineers in the £100k+ band
- Maximise pension salary sacrifice up to the £60,000 annual allowance. Most engineers leave this on the table. The combination of 60% trap recovery + employer NI passthrough makes the effective relief on every £1 sacrificed reach 65-75%.
- Sell RSUs at vest, not later. The RSU is taxed as income at vest regardless. Holding the shares post-vest is a separate investment decision — and concentrating wealth in your employer's stock when your salary already comes from there is poor diversification. Sell at vest, redeploy into a global tracker inside your ISA.
- File Self Assessment for the RSU undertaxation gap. If sell-to-cover under-withholds, the shortfall hits in the Self Assessment payment due 31 January. Don't let it surprise you. The Self Assessment decision page covers when filing is mandatory.
- Use the £3,000 CGT annual exempt amount on accumulated post-vest gains. Sell shares with embedded gains up to the AEA each tax year. The CGT shares calculator models the tax position.
The most common mistake
Two related mistakes. One: treating RSU value at grant as "real" compensation. RSUs only have value if they vest — and vested-but-unsold RSUs are concentrated stock risk in your employer. Engineers frequently mis-budget against expected RSU values that don't materialise. Two: not adjusting pension contributions when RSU income lands. A typical engineer auto-enrolled at 5% pension is dramatically under-contributing relative to their actual income. Adjust the salary sacrifice rate when RSUs vest to absorb the additional taxable income.
Sources
HMRC: Tax and Employee Share Schemes · ERS manual · Pension annual allowance.