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HMRC internal manual

Employment Related Securities Manual

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HM Revenue & Customs
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Employment-related securities and options: what are securities: RSUs and dividend equivalents: examples

The following examples are necessarily general. How the law applies in actual cases will depend on the specific facts of each.

Example 1 - RSU without dividend equivalents

The long-term incentive plan of Can-it-Rite Inc awards 1,000 RSUs to William, vesting in three years’ time. At vesting William receives 1,000 shares worth £4,500.

William is charged to tax on the money’s worth received at vesting of £4,500.

Example 2 - RSU with rolled up dividend equivalents paid out in shares

The long-term incentive plan of Can-it-Rite Inc awards 1,000 RSUs to Wilma, vesting in three years’ time. At vesting Wilma receives 1,000 shares worth £4,500 plus a further 100 shares worth £450 equivalent in value to dividends voted during the three-year period.

Wilma is charged to tax on the money’s worth received at vesting of £4,950.

Example 3 - RSU with rolled up dividend equivalents paid out in cash

The long-term incentive plan of Can-it-Rite Inc awards 1,000 RSUs to Willie, vesting in three years’ time. At vesting Willie receives 1,000 shares worth £4,500 plus a further £450 equivalent in value to dividends voted during the three-year period.

Willie is charged to tax on the total of money’s worth received of £4,500 and cash earnings of £450, at vesting, making a total charge on £4,950

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Example 4 - RSU with dividend equivalents paid out in cash

The long-term incentive plan of Can-it-Rite Inc awards 1,000 RSUs to Bill, vesting in three years’ time. Each year Bill receives a dividend equivalent in cash from his employer of £150. If Bill leaves the company he will lose any remaining benefit in the RSU. At vesting Bill receives 1,000 shares worth £4,500.

Bill is charged to tax each year on the cash payment of £150 as earnings and when he receives the shares at vesting he is charged on the money’s worth received of £4,500.