Section 431 election

dc197

Hello
Grateful for some advice please.
My company recently listed publicly and as a bonus granted each employee around £500 of restricted shares, 298 shares each in fact. They are restricted under subsection 3 of section 423: they are restricted in that they cannot be sold within 3 years. (Says http://www.taxation.co.uk/taxation/Articles/2013/11/06/316131/under-restriction)
The shares were a gift and we paid nothing for them.

On the day of their granting the value of the shares on the open market without restrictions (I understand this to mean the "unrestricted market value") was around £1.90.
My shares have restrictions and are worth less than this until the restitutions are lifted, the were worth the Actual Market Value (AMV) on the grant day. That's my understanding.

My employer is asking whether I'd like to make a s431 election. In understand that this would mean I pay tax now on the whole £500 (i.e. on the UMV less the nothing I paid for them), but then nothing further when the restrictions are lifted in 3 years.

If I don't elect, I understand that I would pay tax now on the difference between UMV and AMV, and then am taxed again in 3 years based on both these values and the market growth of decline.
When I would pay in three years is where I'm confused.

To work this out, wouldn't we need to know both the UMV at grant AND the AMV? i.e. know both the unrestricted and the depressed value at grant?

Grateful for a little illumination.

Thanks

Dead_keen

dc197 wrote: »

Hello
Grateful for some advice please.
My company recently listed publicly and as a bonus granted each employee around £500 of restricted shares, 298 shares each in fact. They are restricted under subsection 3 of section 423: they are restricted in that they cannot be sold within 3 years. (Says http://www.taxation.co.uk/taxation/Articles/2013/11/06/316131/under-restriction)
The shares were a gift and we paid nothing for them.

On the day of their granting the value of the shares on the open market without restrictions (I understand this to mean the "unrestricted market value") was around £1.90.
My shares have restrictions and are worth less than this until the restitutions are lifted, the were worth the Actual Market Value (AMV) on the grant day. That's my understanding.

My employer is asking whether I'd like to make a s431 election. In understand that this would mean I pay tax now on the whole £500 (i.e. on the UMV less the nothing I paid for them), but then nothing further when the restrictions are lifted in 3 years.

If I don't elect, I understand that I would pay tax now on the difference between UMV and AMV, and then am taxed again in 3 years based on both these values and the market growth of decline.
When I would pay in three years is where I'm confused.

To work this out, wouldn't we need to know both the UMV at grant AND the AMV? i.e. know both the unrestricted and the depressed value at grant?

Grateful for a little illumination.

Thanks

Let's pretend that UMV = £500 and that AMV = 90% of £500, so £450.

If you make the s431 election you'll pay PAYE/NIC on £500. If you sell them later for £800 then you will pay CGT on a further £300.

If you do not make a s431 election then you will pay PAYE/NIC on AMV (my £450). When the restrictions lift, you will pay PAYE/NIC on 10% of what the shares are worth at that time. So if the shares are worth £600 at that time then you will pay PAYE/NIC on £60. If you then sell them later for £800 you will pay CGT on £290 (being the £800 less £450 less £60).

The 10% in my example is the difference between AMV and UMV (expressed as a percentage of UMV).

The question then is what is the percentage difference between AMV and UMV. This is something for the employer to estimate. I could quite easily see that this would be a nominal amount. I'd be very surprised if it was more than 15%. But who knows.

dc197

Thank you for the clear explanation.
Looks like I certainly need to know both AMV and UMV from my employer to make my own calculation.