What is a section 431 election and why does the 14-day deadline matter?
By SuLe · Updated 16 May 2026
A section 431 election is a joint election by an employee and employer to be taxed on the full unrestricted value of restricted shares at the time they are acquired. It converts what could later be an employment-income charge into a capital gain. It must be signed within 14 days of acquiring the shares, and there is no way to make it late.
Key facts
- Section 431 (of ITEPA 2003) lets you elect to pay tax now on shares' full "unrestricted" value, ignoring the restrictions.
- It must be signed within 14 days of acquiring the shares — a hard statutory deadline with no extension.
- Making it means future growth is taxed as a capital gain, not as employment income.
- It applies to restricted shares — including growth shares and shares acquired on exercising options.
- The signed election is kept by the company, not filed with HMRC, but must be produced on request.
What is a section 431 election?
Most startup shares given to a team come with restrictions — vesting, compulsory transfer on leaving, transfer limits. Under the "restricted securities" rules in ITEPA 2003, those restrictions artificially lower the shares' value at acquisition, and the rules can then tax later increases in value as employment income.
A section 431 election opts out of that. You elect to be taxed now as if the shares had no restrictions — on their full unrestricted value — which usually means a small charge up front.
In exchange, the restricted-securities charge is switched off, so growth from that point is taxed as a capital gain instead of as salary. It is a small cost now to avoid a much larger one later.
Why does the 14-day deadline matter?
Because it is absolute. The election must be made within 14 days of acquiring the shares, and that window is set by statute — there is no reasonable-excuse extension and no late election.
Fourteen days is short, and it runs from acquisition, not from when someone gets round to the paperwork. That is why the election is normally signed at the same moment as the share issue or the option exercise, not afterwards.
Miss it, and the option to convert future income into capital gains is simply gone. The consequence is invisible on day one and expensive on the day of a sale.
When do I need a section 431 election?
Whenever someone acquires restricted shares. The common triggers in a startup are founders subscribing for shares subject to vesting, employees exercising options and receiving restricted shares, and recipients of growth shares.
For EMI, the election is usually built into the exercise paperwork, because the shares acquired on exercise are typically restricted. For growth shares, it is standard practice on issue. [More: What are growth shares?]
Founder shares under reverse vesting are another classic case — restricted from day one, and each founder should sign within 14 days of the share issue. [More: What is founder vesting and how does it work in the UK?]
What happens if I miss it?
The restricted-securities charge stays live. That means increases in the shares' value attributable to restrictions being lifted — for example, vesting completing or transfer restrictions falling away — can be taxed as employment income, at rates up to 45% plus National Insurance.
Instead of a single capital gain on sale, the employee can face income-tax charges along the way and a worse rate overall. And because the shares were often acquired cheaply, the sums involved on an exit can be large.
There is no retrospective fix. The only protection is signing the election in time, which is why it belongs on every share-issue checklist.
| Situation | Restricted shares? | Section 431 election |
|---|---|---|
| Founder shares with vesting | Yes | Sign within 14 days of issue |
| EMI option exercised | Usually yes | Normally in the exercise paperwork |
| Growth shares issued | Yes | Standard on issue |
| Unapproved option exercised | Usually yes | Commonly signed on exercise |
| Fully unrestricted shares | No | Not needed |
Worked example
Priyanka runs Nimbus, a developer-tools startup, and issues 30,000 restricted shares to her first back-end engineer at their restricted value of £0.10 each — £3,000. The unrestricted value is £0.15, so £0.05 a share is being suppressed by the vesting and leaver restrictions.
On the day of issue, both sign a section 431 election. That crystallises a tiny charge on the £0.05 × 30,000 = £1,500 of suppressed value now, and switches off the restricted-securities rules for the future.
Three years later Nimbus sells at £4.00 a share. The engineer's shares are worth £120,000, and the whole gain above the amount already taxed is a capital gain. Without the election, a chunk of that growth could have been taxed as salary instead.
Where founders go wrong
Treating the 14 days as flexible.
It is a hard statutory deadline — sign at the moment of acquisition, not when the paperwork drifts back.Assuming EMI makes it unnecessary.
Shares acquired on exercising EMI options are usually restricted, so the election still matters — check it is in the exercise documents.Forgetting founders need it too.
Vesting founder shares are restricted from day one; each founder should sign within 14 days of the issue.Losing the signed form.
The election is kept by the company, not filed — if HMRC asks and you cannot produce it, you are back to arguing the point.
Related questions
What does a section 431 election actually do?
It elects to be taxed now on the full "unrestricted" value of restricted shares, ignoring the restrictions that depress their value. That usually means a small tax charge up front, in exchange for all future growth being taxed as a capital gain rather than as employment income. [More: What are growth shares?]
Why is the deadline only 14 days?
The 14-day limit is set by statute (ITEPA 2003) and runs from the date the shares are acquired. It is one of the hardest deadlines in UK share-scheme law: there is no extension and no late election, so it has to be handled at the moment shares are issued or options exercised. [More: What is founder vesting and how does it work in the UK?]
Do I need a section 431 election for EMI options?
Often yes, on exercise. EMI option agreements and exercise paperwork usually include a section 431 election because the shares acquired on exercise are typically restricted. It helps ensure the growth after exercise stays in the capital-gains regime. [More: What is an EMI share option scheme?]
What happens if I miss the 14-day deadline?
You cannot make the election. Future increases in value attributable to the lifting of restrictions can then be taxed as employment income — potentially at up to 45% plus NIC — rather than as a capital gain. The cost usually surfaces years later on a sale. [More: What exercise price should EMI options have?]
Who signs the section 431 election?
The employee (or other recipient of the shares) and the employer sign a joint election, usually on HMRC's standard form wording. It is kept by the company rather than filed with HMRC, but must be retained and produced if HMRC asks. [More: How do I set up an EMI scheme?]
The section 431 election is a one-paragraph form with a 14-day fuse — cheap to get right, impossible to fix once the window closes, and quietly costly on exit. A SuLe solicitor can build it into your share issues and exercises so it is never missed. Book a free call about your option scheme and make sure every recipient signs in time.
Keep reading: What are growth shares? · What is an EMI share option scheme? · What exercise price should EMI options have? · How do I set up an EMI scheme? · What is founder vesting and how does it work in the UK? · Can contractors or advisors receive share options?
Primary sources: GOV.UK — Enterprise Management Incentives (EMIs)
