Restricted shares are shares that are subject to restrictions which affect their value for tax purposes (which commonly include vesting conditions, good and bad leaver conditions and restrictions on transfer). Restricted shares are issued directly to the recipient which means the individual becomes a shareholder of the UK company once the shares are issued, although the rights they have as a shareholder will be determined by the rights and restrictions applying to the restricted shares. The difference between the purchase price and the market value of the restricted shares at acquisition is taxable employment income for the recipient and, provided a section 431 election is signed and none of the relevant anti-avoidance provisions apply, any subsequent gain in value is subject to capital gains tax. It is extremely important that a section 431 election is signed by the recipient and their employer within 14 days of the shares being acquired in order to avoid any liability to income tax (and potentially National Insurance Contributions) arising following acquisition of the restricted shares.
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