Finance (No. 3) Bill (HC Bill 200)

(a) the subject of the relevant step is relevant shares (“earmarked
shares”) which are earmarked, or otherwise start being held,
solely with a view to the meeting of—

(i) an award of relevant shares or a sum of money made
5to A under B’s employee share scheme as mentioned
in subsection (1)(a) in relation to which the
requirements of subsection (1)(b) to (e) are met, or

(ii) an award of relevant shares or a sum of money which
is expected to be made to A under B’s employee share
10scheme as mentioned in subsection (1)(a) and in
relation to which the requirements of subsection
(1)(b) to (e) would be met,

(b) the number of relevant shares of any type which are
earmarked shares does not exceed the maximum number of
15relevant shares of that type which might reasonably be
expected to be needed for meeting the award or expected
award, and

(c) there is no connection (direct or indirect) between the
relevant step and a tax avoidance arrangement.

(3) 20If the relevant step mentioned in subsection (2) is taken in relation to
an expected award as mentioned in subsection (2)(a)(ii), subsection
(4) applies if—

(a) the award is not made before the end of the date (“the final
award date”) falling immediately after the period of three
25months starting with the date on which P takes the relevant
step, and

(b) as at the end of the final award date, any of the earmarked
shares continue to be held by or on behalf of P solely on the
basis mentioned in subsection (2)(a).

(4) 30This Part has effect as if a relevant step within section 554B were
taken at the end of the final award date—

(a) the subject of which is—

(i) the shares which continue to be held as mentioned in
subsection (3)(b), and

(ii) 35any relevant income in relation to those shares (see
subsection (12)), and

(b) by reason of which Chapter 2 is to apply (subject only to
section 554A(4)).

(5) Subsection (6) applies if, at any time (“the relevant time”)—

(a) 40any of the earmarked shares cease to be held by or on behalf
of P solely on the basis mentioned in subsection (2)(a), but

(b) the shares continue to be held by or on behalf of P on the basis
mentioned in section 554B(1)(a) or (b).

(6) This Part has effect as if a relevant step within section 554B were
45taken at the relevant time—

(a) the subject of which is—

(i) the shares mentioned in subsection (5), and

(ii) any relevant income in relation to those shares (see
subsection (12)), and

(b) by reason of which Chapter 2 is to apply (subject only to
section 554A(4)).

(7) Subsection (8) applies if—

(a) the relevant step mentioned in subsection (2) is taken in
5relation to an award which has been made as mentioned in
subsection (2)(a)(i), or

(b) the relevant step mentioned in subsection (2) is taken in
relation to an expected award as mentioned in subsection
(2)(a)(ii) and the award is made before the end of the final
10award date,

and the specified exit event, or an exit event within the specified
description, occurs.

(8) This Part has effect as if a relevant step within section 554B were
taken at the end of the exit period—

(a) 15the subject of which is—

(i) any of the earmarked shares to which neither
subsection (9) nor subsection (10) applies, and

(ii) any relevant income in relation to any of the
earmarked shares mentioned in sub-paragraph (i)
20(see subsection (12)), and

(b) by reason of which Chapter 2 is to apply (subject only to
section 554A(4)).

(9) This subsection applies to any earmarked shares if—

(a) A receives the shares before the end of the exit period, and

(b) 25the receipt of the shares by A gives rise to employment
income of A which is chargeable to income tax or which is
exempt income.

(10) This subsection applies to any earmarked shares if—

(a) the sum of money mentioned in subsection (1)(a)(ii) (or a part
30of it) is paid to A before the end of the exit period,

(b) the payment of the sum to A gives rise to employment
income of A which is chargeable to income tax or which is
exempt income, and

(c) the payment represents the proceeds of the disposal of the
35shares, or the payment is made from another source and,
correspondingly, the shares are no longer held by any person
in relation to the award.

(11) In subsections (8), (9)(a) and (10)(a) “the exit period” means the
period of six months starting with the date on which the exit event
40occurs.

(12) In subsections (4)(a)(ii), (6)(a)(ii) and (8)(a)(ii) “relevant income”, in
relation to any earmarked shares, means any income—

(a) which, before the relevant step is treated as being taken by
subsection (4), (6) or (8) (as the case may be)—

(i) 45arises (directly or indirectly) from the shares, and

(ii) is the subject of a relevant step within section 554B
taken by P by reason of which Chapter 2 would apply
apart from section 554Q, and

(b) which, at the time the relevant step is treated as being taken,
continues to be held by or on behalf of P on the basis
mentioned in section 554B(1)(a) or (b).

554L Exclusions: earmarking for employee share schemes (3)

(1) 5This section applies if—

(a) there is an arrangement (“B’s employee share scheme”)
under which, in respect of A’s employment with B, a right (“a
relevant share option”) may be granted to A—

(i) to acquire relevant shares, or

(ii) 10to receive a sum of money the amount of which is to
be determined by reference to the market value of any
relevant shares at the time the sum is to be paid,

(b) the main purpose of the grant of the relevant share option
would not be the provision of relevant benefits,

(c) 15the grant would be made on terms (“the deferred grant
terms”) the main purpose of which is to ensure that the
relevant share option is not exercisable by A before a
specified date (“the vesting date”) which is after the date
(“the grant date”) on which the grant is made, while
20providing that the relevant share option is not to be
exercisable at all by A if specified conditions are not met on
or before the vesting date,

(d) the vesting date would not be more than ten years after the
grant date, and

(e) 25as at the grant date, there would be a reasonable chance that
the relevant share option will not be exercisable at all by A
because not all the specified conditions will be met on or
before the vesting date.

(2) In addition to the provision relating to revocation required by
30subsection (1)(c) (which must be included), the deferred grant terms
may also provide that the relevant share option may be exercised by
A only in part if specified conditions are not met on or before the
vesting date.

(3) Chapter 2 does not apply by reason of a relevant step within section
35554B (by reason of which it would otherwise apply) taken by a
person (“P”) if—

(a) the subject of the relevant step is relevant shares (“earmarked
shares”) which are earmarked, or otherwise start being held,
solely with a view to providing relevant shares, or paying a
40sum of money, pursuant to—

(i) a relevant share option granted to A under B’s
employee share scheme as mentioned in subsection
(1)(a) in relation to which the requirements of
subsection (1)(b) to (e) are met, or

(ii) 45a relevant share option which is expected to be
granted to A under B’s employee share scheme as
mentioned in subsection (1)(a) and in relation to
which the requirements of subsection (1)(b) to (e)
would be met,

(b) 50the number of relevant shares of any type which are
earmarked shares does not exceed the maximum number of

relevant shares of that type which might reasonably be
expected to be needed for providing shares, or paying a sum
of money, pursuant to the relevant share option which is
granted or expected to be granted, and

(c) 5there is no connection (direct or indirect) between the
relevant step and a tax avoidance arrangement.

(4) If the relevant step mentioned in subsection (3) is taken in relation to
an expected grant of a relevant share option as mentioned in
subsection (3)(a)(ii), subsection (5) applies if—

(a) 10the grant is not made before the end of the date (“the final
grant date”) falling immediately after the period of three
months starting with the date on which P takes the relevant
step, and

(b) as at the end of the final grant date, any of the earmarked
15shares continue to be held by or on behalf of P solely on the
basis mentioned in subsection (3)(a).

(5) This Part has effect as if a relevant step within section 554B were
taken at the end of the final grant date—

(a) the subject of which is—

(i) 20the shares which continue to be held as mentioned in
subsection (4)(b), and

(ii) any relevant income in relation to those shares (see
subsection (15)), and

(b) by reason of which Chapter 2 is to apply (subject only to
25section 554A(4)).

(6) Subsection (7) applies if, at any time (“the relevant time”)—

(a) any of the earmarked shares cease to be held by or on behalf
of P solely on the basis mentioned in subsection (3)(a), but

(b) the shares continue to be held by or on behalf of P on the basis
30mentioned in section 554B(1)(a) or (b).

(7) This Part has effect as if a relevant step within section 554B were
taken at the relevant time—

(a) the subject of which is—

(i) the shares mentioned in subsection (6), and

(ii) 35any relevant income in relation to those shares (see
subsection (15)), and

(b) by reason of which Chapter 2 is to apply (subject only to
section 554A(4)).

(8) Subsection (9) applies if—

(a) 40the relevant step mentioned in subsection (3) is taken in
relation to a grant of a relevant share option made as
mentioned in subsection (3)(a)(i), or

(b) the relevant step mentioned in subsection (3) is taken in
relation to an expected grant of a relevant share option as
45mentioned in subsection (3)(a)(ii) and the grant is made
before the end of the final grant date.

(9) This Part has effect as if a relevant step within section 554B were
taken at the end of the final exercise date—

(a) the subject of which is—

(i) any of the earmarked shares to which none of
subsections (10) to (13) applies, and

(ii) any relevant income in relation to any of the
5earmarked shares mentioned in sub-paragraph (i)
(see subsection (15)), and

(b) by reason of which Chapter 2 is to apply (subject only to
section 554A(4)).

(10) This subsection applies to any earmarked shares if—

(a) 10the relevant share option becomes exercisable (in whole or in
part) by A before the end of the vesting date,

(b) A exercises the option (wholly or partly) before the end of the
final exercise date and, as a result, receives the shares, and

(c) the receipt of the shares gives rise to employment income of
15A—

(i) which is chargeable to income tax or would be
chargeable apart from section 474, or

(ii) which is exempt income.

(11) This subsection applies to any earmarked shares if—

(a) 20the relevant share option becomes exercisable (in whole or in
part) by A before the end of the vesting date,

(b) A exercises the option (wholly or partly) before the end of the
final exercise date and, as a result, a sum of money is paid to
A as mentioned in subsection (1)(a)(ii),

(c) 25the payment of the sum gives rise to employment income of
A—

(i) which is chargeable to income tax or would be
chargeable apart from section 474, or

(ii) which is exempt income, and

(d) 30the payment represents the proceeds of the disposal of the
shares, or the payment is made from another source and,
correspondingly, the shares are no longer held by any person
in relation to the relevant share option.

(12) This subsection applies to any earmarked shares if—

(a) 35in accordance with the deferred grant terms, before the end
of the vesting date, the relevant share option ceases to be
exercisable by A (in whole or in part), and

(b) correspondingly, the shares are no longer held by any person
in relation to the relevant share option.

(13) 40This subsection applies to any earmarked shares if—

(a) the relevant share option becomes exercisable by A (in whole
or in part) before the end of the vesting date but the option
lapses (in whole or in part) before the end of the final exercise
date, and

(b) 45correspondingly, the shares are no longer held by any person
in relation to the relevant share option.

(14) In subsections (9) to (13) “the final exercise date” means the date
which is ten years after the grant date.

(15) In subsections (5)(a)(ii), (7)(a)(ii) and (9)(a)(ii) “relevant income”, in
relation to any earmarked shares, means any income—

(a) which, before the relevant step is treated as being taken by
subsection (5), (7) or (9) (as the case may be)—

(i) 5arises (directly or indirectly) from the shares, and

(ii) is the subject of a relevant step within section 554B
taken by P by reason of which Chapter 2 would apply
apart from section 554Q, and

(b) which, at the time the relevant step is treated as being taken,
10continues to be held by or on behalf of P on the basis
mentioned in section 554B(1)(a) or (b).

554M Exclusions: earmarking for employee share schemes (4)

(1) This section applies if—

(a) there is an arrangement (“B’s employee share scheme”)
15under which, in respect of A’s employment with B, a right (“a
relevant share option”) may be granted to A—

(i) to acquire relevant shares, or

(ii) to receive a sum of money the amount of which is to
be determined by reference to the market value of any
20relevant shares at the time the sum is to be paid,

(b) the main purpose of the grant of the relevant share option
would not be the provision of relevant benefits,

(c) the relevant shares would be—

(i) shares (including stock) in, or

(ii) 25instruments within paragraph (b) of the definition of
“relevant shares” in section 554I(4) issued by,

a trading company or a company which controls a trading
company,

(d) the grant would be made on terms (“the deferred grant
30terms”) the main purpose of which is to ensure that the
relevant share option is exercisable by A only if a specified
exit event, or an exit event within a specified description,
occurs, and

(e) as at the time the grant is made, there would be a reasonable
35chance that the specified exit event, or an exit event within
the specified description, will occur.

(2) Chapter 2 does not apply by reason of a relevant step within section
554B (by reason of which it would otherwise apply) taken by a
person (“P”) if—

(a) 40the subject of the relevant step is relevant shares (“earmarked
shares”) which are earmarked, or otherwise start being held,
solely with a view to providing relevant shares, or paying a
sum of money, pursuant to—

(i) a relevant share option granted to A under B’s
45employee share scheme as mentioned in subsection
(1)(a) in relation to which the requirements of
subsection (1)(b) to (e) are met, or

(ii) a relevant share option which is expected to be
granted to A under B’s employee share scheme as
50mentioned in subsection (1)(a) and in relation to

which the requirements of subsection (1)(b) to (e)
would be met,

(b) the number of relevant shares of any type which are
earmarked shares does not exceed the maximum number of
5relevant shares of that type which might reasonably be
expected to be needed for providing shares, or paying a sum
of money, pursuant to the relevant share option which is
granted or expected to be granted, and

(c) there is no connection (direct or indirect) between the
10relevant step and a tax avoidance arrangement.

(3) If the relevant step mentioned in subsection (2) is taken in relation to
an expected grant of a relevant share option as mentioned in
subsection (2)(a)(ii), subsection (4) applies if—

(a) the grant is not made before the end of the date (“the final
15grant date”) falling immediately after the period of three
months starting with the date on which P takes the relevant
step, and

(b) as at the end of the final grant date, any of the earmarked
shares continue to be held by or on behalf of P solely on the
20basis mentioned in subsection (2)(a).

(4) This Part has effect as if a relevant step within section 554B were
taken at the end of the final grant date—

(a) the subject of which is—

(i) the shares which continue to be held as mentioned in
25subsection (3)(b), and

(ii) any relevant income in relation to those shares (see
subsection (14)), and

(b) by reason of which Chapter 2 is to apply (subject only to
section 554A(4)).

(5) 30Subsection (6) applies if, at any time (“the relevant time”)—

(a) any of the earmarked shares cease to be held by or on behalf
of P solely on the basis mentioned in subsection (2)(a), but

(b) the shares continue to be held by or on behalf of P on the basis
mentioned in section 554B(1)(a) or (b).

(6) 35This Part has effect as if a relevant step within section 554B were
taken at the relevant time—

(a) the subject of which is—

(i) the shares mentioned in subsection (5), and

(ii) any relevant income in relation to those shares (see
40subsection (14)), and

(b) by reason of which Chapter 2 is to apply (subject only to
section 554A(4)).

(7) Subsection (8) applies if—

(a) the relevant step mentioned in subsection (2) is taken in
45relation to a grant of a relevant share option made as
mentioned in subsection (2)(a)(i), or

(b) the relevant step mentioned in subsection (2) is taken in
relation to an expected grant of a relevant share option as

mentioned in subsection (2)(a)(ii) and the grant is made
before the end of the final grant date,

and the specified exit event, or an exit event within the specified
description, occurs.

(8) 5This Part has effect as if a relevant step within section 554B were
taken at the end of the exit period—

(a) the subject of which is—

(i) any of the earmarked shares to which none of
subsections (9) to (11) applies, and

(ii) 10any relevant income in relation to any of the
earmarked shares mentioned in sub-paragraph (i)
(see subsection (14)), and

(b) by reason of which Chapter 2 is to apply (subject only to
section 554A(4)).

(9) 15This subsection applies to any earmarked shares if—

(a) A exercises the relevant share option (wholly or partly)
before the end of the exit period and, as a result, receives the
shares, and

(b) the receipt of the shares gives rise to employment income of
20A—

(i) which is chargeable to income tax or would be
chargeable apart from section 474, or

(ii) which is exempt income.

(10) This subsection applies to any earmarked shares if—

(a) 25A exercises the relevant share option (wholly or partly)
before the end of the exit period and, as a result, a sum of
money is paid to A as mentioned in subsection (1)(a)(ii),

(b) the payment of the sum gives rise to employment income of
A—

(i) 30which is chargeable to income tax or would be
chargeable apart from section 474, or

(ii) which is exempt income, and

(c) the payment represents the proceeds of the disposal of the
shares, or the payment is made from another source and,
35correspondingly, the shares are no longer held by any person
in relation to the relevant share option.

(11) This subsection applies to any earmarked shares if—

(a) the relevant share option becomes exercisable by A before the
end of the exit period but the option lapses (in whole or in
40part) at or before the end of that period, and

(b) correspondingly, the shares are no longer held by any person
in relation to the relevant share option.

(12) In subsections (8), (9)(a), (10)(a) and (11)(a) “the exit period” means—

(a) the period of six months starting with the date on which the
45exit event occurs, or

(b) if it ends earlier, the period during which the relevant share
option is exercisable by A in accordance with the deferred
grant terms.

(13) If the exit event is an event within section 554I(6)(a), in subsection
(12)(a) the reference to six months is to be read as a reference to five
years.

(14) In subsections (4)(a)(ii), (6)(a)(ii) and (8)(a)(ii) “relevant income”, in
5relation to any earmarked shares, means any income—

(a) which, before the relevant step is treated as being taken by
subsection (4), (6) or (8) (as the case may be)—

(i) arises (directly or indirectly) from the shares, and

(ii) is the subject of a relevant step within section 554B
10taken by P by reason of which Chapter 2 would apply
apart from section 554Q, and

(b) which, at the time the relevant step is treated as being taken,
continues to be held by or on behalf of P on the basis
mentioned in section 554B(1)(a) or (b).

554N 15 Exclusions: other cases involving employment-related securities etc

(1) Chapter 2 does not apply by reason of a relevant step the subject of
which is employment-related securities if—

(a) by virtue of the step, the securities are acquired by a person,
and

(b) 20section 425(2) applies, or would apply apart from section
421E(1), to the acquisition.

(2) Chapter 2 does not apply by reason of a relevant step the subject of
which is an employment-related securities option if—

(a) by virtue of the step, the option is acquired by a person, and

(b) 25section 475(1) applies, or would apply apart from section
474(1), to the acquisition.

(3) Terms used in subsection (1) or (2) have the same meaning as they
have in Chapter 2 or 5 of Part 7 (as the case may be).