(8) “Pension scheme” has the same meaning as in Part 4 of FA 2004 (see
section 150(1) of that Act).

(9) “Relevant step” is defined in section 554A(2).

(10) References to a relevant step which involves a sum of money are
5references to—

(a) a step within section 554B where the subject of the relevant
step is a sum of money,

(b) a step within section 554C(1)(a), or

(c) a step within section 554C(1)(d) where the subject of the
10relevant step is a sum of money.

(11) References to the asset which is the subject of a relevant step are, in
the case of a step within section 554C(1)(e), references to the lease
granted.

(12) For this purpose, the lease granted is to be treated as including any
15extensions of the lease, or any later lease, which by virtue of section
554C(7) or (8) is taken into account in determining the likely effective
duration of the lease for the purposes of section 554C(1)(e).

(13) “Tax avoidance arrangement” means an arrangement which has a
tax avoidance purpose.

(14) 20For the purposes of subsection (13) an arrangement has a tax
avoidance purpose if subsection (15) applies to a person who is a
party to the arrangement.

(15) This subsection applies to a person if the main purpose, or one of the
main purposes, of the person in entering into the arrangement is the
25avoidance of tax or national insurance contributions.

(16) The following paragraphs apply for the purpose of determining
whether any relevant step or any other step is connected with a tax
avoidance arrangement—

(a) the step is connected with a tax avoidance arrangement if (for
30example) the step is taken (wholly or partly) in pursuance
of—

(i) the tax avoidance arrangement, or

(ii) an arrangement at one end of a series of arrangements
with the tax avoidance arrangement being at the other
35end, and

(b) it does not matter if the person taking the step is unaware of
the tax avoidance arrangement.

554Z1 Interpretation: persons linked with A

(1) In this Part references to any person linked with A are references to—

(a) 40any person who is or has been connected with A,

(b) a close company in which A or a person within any other
paragraph of this subsection is or has been a participator,

(c) a company in which A or a person within any other
paragraph of this subsection is or has been a participator and
45which would be a close company if it were a UK resident
company, or

(d) a company which is a 51% subsidiary of a company within
paragraph (b) or (c).

(2) In applying section 993 of ITA 2007 for the purposes of subsection
(1)—

(a) 5a man and woman living together as if they were spouses of
each other are treated as if they were spouses of each other,
and

(b) two people of the same sex living together as if they were civil
partners of each other are treated as if they were civil partners
10of each other.

(3) In subsection (1) “participator”—

(a) in relation to a close company, means a person who is a
participator in relation to the company for the purposes of
section 455 of CTA 2010 (see sections 454 and 455(5) of that
15Act), and

(b) in relation to a company which would be a close company if
it were a UK resident company, means a person who would
be such a participator if the company were a close company.

CHAPTER 2 Treatment of relevant step for income tax purposes

20Employment income

554Z2 Value of relevant step to count as employment income

(1) If this Chapter applies by reason of a relevant step, the value of the
relevant step (see section 554Z3) counts as employment income of A
in respect of A’s employment with B—

(a) 25if the relevant step is taken before A’s employment with B
starts, for the tax year in which the employment starts, or

(b) otherwise, for the tax year in which the relevant step is taken.

(2) If the relevant step gives rise to—

(a) an amount which (apart from this subsection) would be
30treated as earnings of A under a provision of the benefits
code, or

(b) any income of A which (apart from this subsection) would be
dealt with under Chapter 3 of Part 4 of ITTOIA 2005,

subsection (1) applies instead of that provision of the benefits code or
35Chapter 3 of Part 4 of ITTOIA 2005 (as the case may be).

(3) In particular, in a case in which the relevant step is the making of an
employment-related loan (within the meaning of Chapter 7 of Part
3), the effect of subsection (2)(a) is that the loan is not to be treated for
any tax year as a taxable cheap loan for the purposes of that Chapter.

554Z3 40 Value of relevant step

(1) If the relevant step involves a sum of money, its value is the amount
of the sum.

(2) In any other case, the value of the relevant step is—

(a) the market value when the relevant step is taken of the asset
which is the subject of the step, or

(b) if higher, the cost of the relevant step.

(3) Subsection (2)(a) is subject to sections 437 and 452.

(4) 5Subsection (2)(b) is to be ignored if—

(a) the relevant step is within section 554C(1)(c), and

(b) any of Chapters 2 to 4A of Part 7 apply by virtue of the
acquisition.

(5) Subsection (2)(b) is also to be ignored if section 554Z7 applies.

(6) 10In subsection (2)(b) the reference to the cost of the relevant step is to
the expense incurred in connection with the relevant step (including
a proper proportion of any expense relating partly to the relevant
step and partly to other matters) by the person or persons at whose
cost the relevant step is taken.

(7) 15Subsections (1) and (2) are subject to sections 554Z4, 554Z5, 554Z6,
554Z7 and 554Z8, which, so far as applicable, are to be applied in that
order.

554Z4 Residence issues

(1) After the value of the relevant step is determined under section
20554Z3, the particular tax year or years which the value of the relevant
step is “for” are to be determined.

(2) For this purpose, apply sections 16(1) to (4) and 17(1) to (3) as if the
value of the relevant step were general earnings.

(3) Subsection (4) applies if the value of the relevant step, or a part of it,
25is “for” a tax year in which A is non-UK resident.

(4) The value, or the part of it, is to be reduced so far as it is not in respect
of duties performed in the United Kingdom.

(5) The question of the extent to which the value, or the part of it, is not
in respect of duties performed in the United Kingdom is to be
30determined on a just and reasonable basis.

(6) This section does not change the tax year for which the value of the
relevant step counts as employment income under section 554Z2(1).

554Z5 Overlap with earlier relevant step

(1) This section applies if there is overlap between—

(a) 35the sum of money or asset (“sum or asset P”) which is the
subject of the relevant step, and

(b) the sum of money or asset (“sum or asset Q”) which was the
subject of an earlier relevant step (“the earlier relevant step”)
by reason of which this Chapter applied in respect of A’s
40employment with B.

(2) The value of the relevant step (after any reductions under section
554Z4) is reduced (but not below nil)—

(a) if the overlap covers the whole of sum or asset Q, by the value
of the earlier relevant step, or

(b) if the overlap covers only part of sum or asset Q, by the part
of the value of the earlier relevant step which corresponds to
the part of sum or asset Q covered by the overlap as
determined on a just and reasonable basis.

(3) 5In subsection (2) references to the value of the earlier relevant step
are to that value—

(a) after any reductions made to it under section 554Z4 or this
section or section 554Z7, but

(b) before any reductions made to it under section 554Z6 or
10554Z8.

(4) For the purposes of this section there is overlap between sum or asset
P and sum or asset Q so far as—

(a) they are the same sum of money or asset, or

(b) sum or asset P, essentially, replaces sum or asset Q.

(5) 15Further, if any reductions were made under this section to the value
of the earlier relevant step, sum or asset P is treated as overlapping
with any other sum of money or asset so far as the other sum of
money or asset was treated as overlapping with sum or asset Q for
the purposes of this section.

554Z6 20 Overlap with certain earnings

(1) This section applies if the relevant step gives rise to relevant earnings
of A from A’s employment with B—

(a) which are, in accordance with section 16 and (if applicable)
section 17, “for” a tax year in which A is UK resident, or

(b) 25which are, in accordance with section 29 and (if applicable)
section 30, “for” a tax year in which A is non-UK resident but
which are in respect of duties performed in the United
Kingdom for the purposes of section 27(1)(a).

(2) The value of the relevant step (after any reductions under section
30554Z4 or 554Z5) is reduced (but not below nil) by the amount of the
relevant earnings.

(3) For the purposes of this section the following are “relevant”
earnings—

(a) earnings within Chapter 1 of Part 3,

(b) 35amounts treated as earnings under Chapter 12 of Part 3, and

(c) a deemed employment payment under section 50 or any part
of such a payment.

(4) But anything which is exempt income, or which falls within Chapter
3 of Part 4 of ITTOIA 2005, is not “relevant”.

554Z7 40 Exercise price of share options

(1) Subsection (3) applies if—

(a) the relevant step is a step within section 554B (other than one
treated as being taken by section 554L(5), (7) or (9) or
554M(4), (6) or (8)),

(b) 45B is a company,

(c) 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) 5to 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,

(d) in order to exercise the relevant share option so as—

(i) to acquire the relevant shares, or

(ii) 10to receive the sum of money,

A would, under the terms of the option, have to pay a sum of
money the amount of which can be determined at the time of
the grant of the option,

(e) the subject of the relevant step is relevant shares (“earmarked
15shares”) which are earmarked, or otherwise start being held,
solely with a view to providing shares, or paying a sum of
money, pursuant to—

(i) a relevant share option granted to A under B’s
employee share scheme as mentioned in paragraph
20(c) in relation to which the requirements of paragraph
(d) are met, or

(ii) a relevant share option which is expected to be
granted to A under B’s employee share scheme as
mentioned in paragraph (c) and in relation to which
25the requirements of paragraph (d) would be met,

(f) the 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
30of money, pursuant to the relevant share option which is
granted or expected to be granted, and

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

(2) Subsection (3) also applies if—

(a) 35the relevant step is a step treated as being taken by section
554L(9) or 554M(8), and

(b) in order to exercise the relevant share option to which the
step relates so as—

(i) to acquire the shares which are the subject of the
40relevant step, or

(ii) to receive the sum of money determined by reference
to the market value of those shares,

A would, under the terms of the option, have to pay a sum of
money the amount of which can be determined at the time
45the option is granted.

(3) The value of the relevant step (after any reductions under sections
554Z4 to 554Z6) is to be reduced (but not below nil) by—

(a) the amount of the sum of money which A would have to pay
as mentioned in subsection (1)(d) or (2)(b), or

(b) 50if the value of the relevant step was reduced under section
554Z4, X% of the amount of that sum of money.

(4) In subsection (3)(b) “X%” means the proportion of the value of the
relevant step (as determined under section 554Z3) left after the
reduction under section 554Z4.

(5) If subsection (3) applies by virtue of subsection (1) and the relevant
5step is taken in relation to an expected grant of a relevant share
option as mentioned in subsection (1)(e)(ii), subsection (7) applies
if—

(a) the grant is not made before the end of the date (“the final
grant date”) falling immediately after the period of three
10months starting with the date on which the relevant step is
taken, 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
basis mentioned in subsection (1)(e).

(6) 15If subsection (3) applies by virtue of subsection (1), subsection (7)
also applies if at any time after the taking of the relevant step—

(a) any of the earmarked shares cease to be held by or on behalf
of P solely on the basis mentioned in subsection (1)(e), but

(b) the shares continue to be held by or on behalf of P on the basis
20mentioned in section 554B(1)(a) or (b).

(7) This Part has effect as if a relevant step within section 554B were
taken at the end of the final grant date or when the shares cease to be
held as mentioned in subsection (6)—

(a) the subject of which is the earmarked shares mentioned in
25subsection (5)(b) or (6), and

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

(8) In this section “relevant shares” has the meaning given by section
554I(4).

554Z8 30 Cases where consideration given for relevant step

(1) Subsection (2) applies if—

(a) the relevant step is a step within section 554C(1)(a) to (c),

(b) the relevant step is for consideration given by A in the form
of the transfer of an asset to P from A,

(c) 35the transfer by A of the asset is made before, or at or about,
the time the relevant step is taken and is not by way of a loan,
and

(d) there is no connection (direct or indirect) between the transfer
by A of the asset and a tax avoidance arrangement.

(2) 40The value of the relevant step (after any reductions under sections
554Z4 to 554Z6) is reduced (but not below nil) by—

(a) the market value of the asset transferred by A at the time of
its transfer, or

(b) if the value of the relevant step was reduced under section
45554Z4, X% of that market value.

(3) For the purposes of subsection (1)(d) it is (in particular) to be
assumed that the transfer by A of the asset is connected with a tax
avoidance arrangement if—

(a) before the transfer, the asset was transferred to A by another
person by way of a loan, or

(b) the asset is, or carries with it, any rights or interests under the
relevant arrangement or any arrangement which is
5connected (directly or indirectly) with the relevant
arrangement.

(4) In subsection (3)(b) “the relevant arrangement” has the meaning
given by section 554A(1)(b).

(5) Subsection (6) applies if—

(a) 10the relevant step is a step within section 554C(1)(b) or (c) or
(e) or 554D and does not also involve a sum of money,

(b) the relevant step is for consideration given by A in the form
of the payment of a sum of money to P by A, and

(c) the payment is made before, or at or about, the time the
15relevant step is taken.

(6) The value of the relevant step (after any reductions under sections
554Z4 to 554Z6) is reduced (but not below nil) by—

(a) the amount of the consideration given, or

(b) if the value of the relevant step was reduced under section
20554Z4, X% of the amount of that consideration.

(7) In subsections (2)(b) and (6)(b) “X%” means the proportion of the
value of the relevant step (as determined under section 554Z3) left
after the reduction under section 554Z4.

(8) In this section references to A include references to any person linked
25with A.

Remittance basis

554Z9 Remittance basis: A is ordinarily UK resident

(1) Subsection (2) applies if—

(a) the value of the relevant step, or a part of it, is “for” a tax year
30(“the relevant tax year”) as determined under section 554Z4,

(b) section 809B, 809D or 809E of ITA 2007 (remittance basis)
applies to A for the relevant tax year,

(c) A is ordinarily UK resident in the relevant tax year,

(d) A’s employment with B in the relevant tax year is
35employment with a foreign employer, and

(e) the duties of A’s employment with B in the relevant tax year
are performed wholly outside the United Kingdom.

(2) A’s employment income by virtue of section 554Z2(1), or the relevant
part of it, is “taxable specific income” in a tax year so far as it is
40remitted to the United Kingdom in that year.

(3) For this purpose, any income which is remitted before A’s
employment with B starts is treated as being remitted in the tax year
in which the employment starts.

(4) Subsection (5) applies if in the relevant tax year—

(a) 45A has associated employments, and

(b) the duties of the associated employments are not performed
wholly outside the United Kingdom.

(5) The amount of A’s employment income to which subsection (2)
applies is limited to such amount as is just and reasonable, having
5regard to—

(a) A’s employment income for the relevant tax year from all
associated employments, together with A’s employment
with B,

(b) the proportion of that income which is general earnings to
10which section 22 applies or is employment income to which
section 41A applies,

(c) the nature of and time devoted to the duties performed
outside the United Kingdom, and those performed in the
United Kingdom, in the relevant tax year, and

(d) 15all other relevant circumstances,

and, if the amount of A’s employment income to which subsection
(2) would otherwise apply exceeds that limit, the amount of A’s
employment income to which that subsection applies is instead to be
such amount as is just and reasonable.

(6) 20In this section “associated employments” means employments with
B or with employers associated with B; and section 24(5) and (6)
applies for the purposes of this subsection.

554Z10 Remittance basis: A is not ordinarily resident

(1) Subsection (2) applies if—

(a) 25the value of the relevant step, or a part of it—

(i) is “for” a tax year (“the relevant tax year”) as
determined under section 554Z4, and

(ii) is not in respect of duties performed in the United
Kingdom,

(b) 30section 809B, 809D or 809E of ITA 2007 (remittance basis)
applies to A for the relevant tax year, and

(c) A is not ordinarily UK resident in the relevant tax year.

(2) A’s employment income by virtue of section 554Z2(1), or the relevant
part of it, is “taxable specific income” in a tax year so far as it is
35remitted to the United Kingdom in that year.

(3) For this purpose, any income which is remitted before A’s
employment with B starts is treated as being remitted in the tax year
in which the employment starts.

(4) The question of the extent to which the value of the relevant step, or
40any part of it, is not in respect of duties performed in the United
Kingdom is to be determined on a just and reasonable basis.

554Z11 Remittance basis: supplementary

(1) Subsection (2) applies if section 554Z9(1)(a) or 554Z10(1)(a) applies to
a part (“the relevant part”) of the value of the relevant step.

(2) 45Any reduction to the value of the relevant step to be made under any
of sections 554Z5 to 554Z8 is to be made so that X% of the reduction
is made by way of reducing the relevant part.

(3) In subsection (2) “X%” means the proportion of the value of the
relevant step represented by the relevant part before any reductions
under any of sections 554Z5 to 554Z8.