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HMRC internal manual

Employment Related Securities Manual

HM Revenue & Customs
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Restricted securities: restricted shares acquired under tax-advantaged scheme - deemed election under section 431(1)

Where shares are acquired under any of the tax-advantaged schemes:

  • Share Incentive Plan (SIP)
  • SAYE Scheme
  • Company Share Option Plan (CSOP), or
  • Enterprise Management Incentives (EMI)

they may still be subject to restrictions (particularly EMI shares). To avoid a further charge when those restrictions lift or expire, there is a deemed election under ITEPA03/S431A to treat all restrictions as lifted. This means that the scheme relief is given against the full unrestricted value and there can be no further Chapter 2 charge.

Special rule for EMI shares

For EMI shares the deemed election only cuts in where there is relief under ITEPA03/S530. Where EMI options are obtained at a discount the relief is under ITEPA03/S531, which involves a potential charge. In those special circumstances there is no deemed election and the employer and employee will have to decide whether it is worthwhile to make a joint election under ITEPA03/S431 within 14 days of the acquisition of the shares.

Very broadly, the charge on exercise is limited (under ITEPA03/S531) to the amount by which the ‘chargeable market value’ exceeds the amounts paid for the shares and for the option. For this purpose ‘chargeable market value’ is the lower of the market value of the shares at the time the option was granted and their market value at the time the option is exercised.

Where there is an election on exercise under ITEPA03/S431 to ignore any restrictions on the shares acquired, the comparison will be between the actual market value at the time the option was granted and the unrestricted market value at the time the option was exercised.


At Grant Actual market value of shares £12
Amount payable on exercise £5  
At exercise Actual market value £7
  Unrestricted market value £9
Without an election the chargeable gain will be £2 (£7 - £5)  

With an election the chargeable gain will be increased to £4 (£9 - £5), but of course there will be no further charge to tax under Chapter 2. The employer and employee will have to take a view as to whether an election would be worthwhile.