Start with the shares and the restrictions
This guide is for UK employees and directors acquiring shares by reason of employment, including management equity in a private company. It focuses on a full election under section 431(1) of ITEPA 2003, with rules checked on 14 November 2026. Identify when you actually acquire the shares, what you pay and which restrictions reduce their value. Review option exercise, tax-advantaged plans and international workdays separately.
What the full election changes
The election treats the shares as if the relevant restrictions were absent at acquisition for the employment tax calculation. Compare actual market value with unrestricted market value for the same holding. Do not substitute the latest funding-round price without checking share class, preference rights and the restrictions being valued.
A full election can increase taxable employment income at acquisition and generally prevents a later charge under the restricted securities rules for those shares. Without it, a later lifting or variation of restrictions, or a disposal while restrictions apply, can trigger an employment income charge under Chapter 2. Where forfeiture provisions apply, section 425 can change the initial charge; do not assume every award follows the example below.
Hypothetical comparison: the value rises before restrictions lift
Assume an employee pays £12,000 for shares with actual market value of £12,000 and unrestricted market value of £20,000 at acquisition. Assume a single qualifying restriction, no forfeiture exemption, no intervening events, and no later payment. With a full election the illustrative employment income at acquisition is £8,000. Without it there is no initial discount on these facts, but 40% of unrestricted value was initially untaxed. If the restriction fully lifts at a value of £50,000, the simplified section 428 calculation gives a £20,000 employment income amount at that point.
These are taxable amounts, not tax bills or savings. A fall in value or loss of the shares can make paying tax early unattractive. Test the downside and how you will fund the tax if there is no sale.
Agree valuation, payroll and signatures before completion
Ask for the award documents, valuation support and both tax calculations. Confirm whether the shares are readily convertible assets and whether PAYE and National Insurance apply. Check any agreement transferring employer National Insurance, and reconcile the Capital Gains Tax acquisition cost separately before a future sale. An election does not turn every subsequent receipt into a capital gain or disapply other employment securities charges.
The employer and employee must make the joint election no later than 14 days after acquisition. Confirm the date and arrange signatures before completion wherever possible. Keep the signed election and ask the employer to confirm how it will report the award. Book a Tax Consultation before signing if the figures are material or the tax treatment is unclear. UA Tax works with clients in London and across the UK.
For advice on your own circumstances, see our higher earner tax planning service and agree the scope before acting.
Official sources and further reading
These primary sources support the framework above. Check the current version before acting because tax law and HMRC guidance can change.