Cross-Border Business

What is a section 431 election and do I need to sign one before I take shares in my employer?

Answered by Jordan Onraet-Wells, Founder & Chartered Tax Adviser (CTA). Published 17 August 2026. Last reviewed 17 August 2026.

The short answer

A section 431 election is a joint election between you and your employer to be taxed on your shares as if they carried no restrictions: you pay income tax now on the full unrestricted value, and in exchange all future growth is taxed as capital gain at up to 24% rather than as employment income at your marginal rate. It must be made within 14 days of acquiring the shares and HMRC allows no late elections. For growth shares, private equity co-invest and US profits interests, where shares are acquired cheaply under heavy restrictions, signing a protective election is usually standard practice because the upfront cost is small and the cost of missing it surfaces years later on exit.

The election must be made by the employer and the employee jointly, not more than 14 days from the date of acquisition; there is no late election and no HMRC discretion to extend.
Without it, the default restricted securities regime taxes part of the value as employment income when restrictions are lifted or the shares are sold, potentially with National Insurance on top.
The economics usually favour signing: at subscription the gap between restricted and unrestricted value is typically small, so the upfront charge is small or nil.
No prescribed form is required: the election is valid if employer and employee agree the key terms in writing in no less detail than HMRC's template, electronic signatures are acceptable, and it is kept with the employer's records rather than submitted for approval.
US profits interests, sweet equity and leveraged co-invest awarded to UK employees are employment-related securities in HMRC's eyes, and the US paperwork never mentions section 431, which is how the 14 days are most often lost.

What the election actually does

Almost every share an employee takes in a private company is a restricted security: leaver provisions, vesting schedules, compulsory transfer clauses and forfeiture terms all count if they depress the market value of the shares. The default treatment is a deferral trap, because you are taxed on less at acquisition and the untaxed slice comes back as employment income when a chargeable event happens. The section 431 election reverses this: employer and employee jointly elect to ignore all of the restrictions, which increases the amount charged to tax and NICs at acquisition and removes any future employment income charge (ERSM30450, HMRC). From then on the growth belongs to Capital Gains Tax at 18% or 24% for 2026/27. Our guide to share options and equity awards across borders covers the regime in full.

Why the 14 days get lost, especially on US awards

The clock runs from the day you acquire the shares, not from when anyone gets round to tax. The commonest failure is sequencing on cross-border deals: the grant agreement for a US profits interest or co-invest is governed by Delaware law, nobody on the US side has heard of section 431, and the election window quietly expires while US counsel perfects the paperwork over three weeks of redlines. The election itself is the easy part. HMRC does not insist on its own template, an election is valid so long as the key terms are agreed in writing in no less detail than HMRC's form, and electronic signatures are acceptable (ERSM30460, HMRC). It needs two signatures and the right wording inside 14 days, not a settled valuation or HMRC's blessing. Sign the protective election first and argue about everything else afterwards.

Should you sign one?

Usually, yes, and the case is strongest where the shares are cheap today, the restrictions are heavy and the upside is large: growth shares issued above a hurdle, private equity management co-invest, and US profits interests held by UK employees. In those cases the protective election typically costs little precisely because the interests are worth little at grant, while the downside of missing it is income tax and possibly NIC on a share of the eventual exit. Even ordinary shares bought at full unrestricted value are often covered by an election as belt and braces, since it costs nothing extra. When the equity is finally sold, the capital gains position, including Business Asset Disposal Relief and valuations, takes over. Horizon UK Tax Solutions reviews grant paperwork and prepares section 431 elections inside the 14 days on fixed fees agreed upfront, with complex cross-border work from £750; if you have just been offered equity, book a free 30-minute clarity call before you sign.

Go deeper

Sources and further reading

This is general information for the 2026/27 UK tax year, not personal tax advice; speak to a Chartered Tax Adviser about your own position.

Applies to you? Ask us directly

A page can only take you so far. Book a free 30-minute clarity call with Jordan, a Chartered Tax Adviser, and get this answered for your exact situation, on a fixed fee agreed upfront.

All quick answers