When US citizens move to the UK or UK employees are granted shares by US companies, the interaction between US and UK tax rules on restricted stock becomes highly relevant. Two key elections come into play:

• The US 83(b) election.
• The UK 431 election.

Understanding how they compare, and when they are needed, is essential for cross-border employees.

The US 83(b) Election

In the US, employees who receive restricted stock can file an 83(b) election within 30 days of grant. This accelerates taxation so that the fair market value at grant is taxed as ordinary income immediately, with future appreciation eligible for capital gains treatment when sold. The main advantage is locking in a low tax cost if the shares are granted at a nominal value.

The UK 431 Election

In the UK, the default rule is that employees may be taxed on growth in share value between grant and vesting. To prevent this, employees and employers can jointly sign a section 431 election under the Income Tax (Earnings and Pensions) Act 2003. This ensures that the employee is taxed upfront on the unrestricted market value of the shares at grant, rather than later when restrictions fall away.

Like the 83(b), the benefit of a 431 election is that future growth is subject to capital gains tax (CGT) rather than income tax. This can result in a significantly lower tax rate if the shares increase in value.

Key Similarities

• Both elections accelerate taxation to the date of grant.
• Both aim to shift future growth from income tax rates to capital gains rates.
• Both must be made promptly: the 83(b) within 30 days of grant, and the 431 by signing the joint election at the time of acquisition.

Key Differences

• Jurisdiction: The 83(b) applies under US tax law, while the 431 applies under UK tax law.
• Filing: The 83(b) must be filed with the IRS, whereas the 431 is a written agreement signed by both employer and employee and kept on record.
• Treatment: The UK election taxes the employee on the unrestricted market value at acquisition, while the US election taxes the fair market value at grant regardless of restrictions.

Cross-Border Considerations

For individuals subject to both US and UK taxation, coordination is critical:

• A US citizen living in the UK may need to consider making both elections to ensure consistent treatment across jurisdictions.
• Failure to align the elections could result in mismatched timing of income recognition, potentially causing double taxation.
• The US–UK tax treaty may provide some relief, but mismatches can still create complexity, particularly where one country recognises income earlier than the other.

Example

Suppose a dual US–UK taxpayer receives restricted stock worth £1,000 at grant, with potential to grow significantly.

With both elections: The £1,000 is taxed immediately as income in both countries. Any future increase in value is subject to CGT in the UK and capital gains tax in the US.

With only the US 83(b) election: The US taxes £1,000 at grant, but the UK could tax a higher value at vesting.

With only the UK 431 election: The UK taxes £1,000 at grant, but the US may later tax ordinary income at vesting.

This mismatch highlights why careful planning and coordination are essential.

Final Thoughts

The 83(b) and 431 elections share a similar purpose but operate under different legal frameworks. For cross-border employees, ensuring both elections are made where applicable can help align tax treatment and avoid costly mismatches.

The information in this blog post is for general informational purposes only and does not constitute professional tax advice. We strongly recommend consulting a qualified tax professional before making any decisions. US Expat Tax Advisor is not liable for any actions taken based on this content.

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