Finance (No. 2) Bill

Session 2012 - 13
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Finance (No. 2) Bill

Finance (No. 2) Bill
Schedule 22 — Employee shareholder shares
Part 2 — Capital gains tax exemption for employee shareholder shares
335

(2)
An employee shareholder share is not exempt for the purposes of
section 236B if—
(a)
at any time in the period of one year ending with the date on
which the share is acquired, the employee had a material
interest in the employer company or a relevant parent
5
undertaking, or
(b)
on the date on which the share is acquired, the employee is
connected with an individual who, at any time in the period
of one year ending with that date, had a material interest in
the employer company or a relevant parent undertaking.
10
(3)
Subsections (4) and (5) define “material interest” for the purposes of
this section.

Those subsections must be read together with subsections (6) to (8).
(4)
An individual (“A”) has a material interest in a company if at least
25% of the voting rights in the company are exercisable—
15
(a)
by A,
(b)
by persons connected with A, or
(c)
by A and persons connected with A together.
(5)
If a company is a close company, an individual (“A”) has a material
interest in it if—
20
(a)
A,
(b)
persons connected with A, or
(c)
A and persons connected with A together,

possess such rights as would, in the event of the winding up of the
company or in any other circumstances, give an entitlement to
25
receive at least 25% of the assets that would then be available for
distribution among the participators.
(6)
For the purposes of subsection (1), A is to be treated as having a
material interest in a company at any time if either of the following
conditions is met.
30
(7)
The first condition is that—
(a)
A,
(b)
persons connected with A, or
(c)
A and persons connected with A together,

have an entitlement to acquire such rights as would (together with
35
any existing rights) give A a material interest in the company.
(8)
The second condition is that there are arrangements in place
between—
(a)
the employer company or a relevant parent undertaking, and
(b)
A, or persons connected with A, or A and persons connected
40
with A together,

which enable A or those persons to acquire such rights as would
(together with any existing rights) give A a material interest in the
company.
(9)
In this section—
45

Finance (No. 2) Bill
Schedule 22 — Employee shareholder shares
Part 2 — Capital gains tax exemption for employee shareholder shares
336

“arrangements” includes any agreement, understanding,
scheme, transaction or series of transactions (whether or not
legally enforceable);
“close company” includes a company that would be a close
company but for—
5
(a)
section 442(a) of CTA 2010 (exclusion of companies
not resident in the United Kingdom), or
(b)
sections 446 and 447 of CTA 2010 (exclusion of certain
quoted companies);
“relevant parent undertaking” means any parent undertaking
10
of the employer company and for this purpose “parent
undertaking” is to be read in accordance with section 1162 of
the Companies Act 2006.
236E
Identification of exempt employee shareholder shares
(1)
Sections 104 (share pooling), 105 (disposal on or before acquisition)
15
and 106A (identification of securities) do not apply to exempt
employee shareholder shares.
(2)
Subsection (3) applies where—
(a)
an employee holds shares of the same class in a company,
(b)
some, but not all, of the shares are exempt employee
20
shareholder shares, and
(c)
the employee disposes of some, but not all, of the shares in
that holding.
(3)
Where this subsection applies—
(a)
the employee may determine what proportion of the shares
25
disposed of are to be treated as exempt employee shareholder
shares (up to the number of such shares which the employee
holds), and
(b)
the consideration received for the shares disposed of is to be
apportioned accordingly.
30
(4)
For the purposes of this section shares in a company are not to be
treated as being of the same class unless they are so treated by the
practice of a recognised stock exchange or would be so treated if
dealt with on a recognised stock exchange.
236F
Reorganisation of share capital involving employee shareholder
35
shares
(1)
Section 127 (equation of original shares and new holding on
reorganisation) does not apply to exempt employee shareholder
shares.
(2)
The reference in subsection (1) to section 127 includes that section as
40
applied by sections 135 and 136 (other company reconstructions).
236G
Relinquishment of employment rights is not disposal of an asset
(1)
This section applies where an individual has acquired shares in
consideration of entering into an employee shareholder agreement.
(2)
The individual is not to be regarded as disposing of an asset by
45
reason of the individual ceasing to have, or not acquiring, the rights

Finance (No. 2) Bill
Schedule 22 — Employee shareholder shares
Part 3 — Corporation tax
337

mentioned in section 205A of the Employment Rights Act 1996
(rights which an employee shareholder does not have) in
consequence of entering into the agreement.”
Part 3
Corporation tax
5
21
CTA 2009 is amended as follows.
22
In section 1005 (definitions), at the appropriate place insert—
““employee shareholder share” has the meaning given by
section 226A(6) of ITEPA 2003,”.
23    (1)
Section 1009 (relief for employee share acquisitions: employee’s tax
10
position) is amended as follows.
      (2)
In subsection (2)(a), for “earnings within Chapter 1 of Part 3 of ITEPA 2003”
substitute “relevant earnings”.
      (3)
After subsection (2) insert—
“(2A)
“Relevant earnings” means—
15
(a)
earnings within Chapter 1 of Part 3 of ITEPA 2003, and
(b)
any amount that is treated as earnings by virtue of section
226A of that Act (employee shareholder shares).”
      (4)
After subsection (5) insert—
“(6)
Where the shares are employee shareholder shares, this section is
20
subject to section 1038B.”
24
In section 1010(1) (acquisition of shares: relief if shares neither restricted nor
convertible), after “section 1012” insert “and, in the case of employee
shareholder shares, section 1038B”.
25    (1)
Section 1011 (acquisition of shares: relief if shares are restricted or
25
convertible) is amended as follows.
      (2)
In subsections (2) and (3), for “earnings of the employee within Chapter 1 of
Part 3 of ITEPA 2003” substitute “relevant earnings of the employee”.
      (3)
For subsection (4) substitute—
“(4)
For the purposes of subsections (2) and (3) “relevant earnings”
30
means—
(a)
earnings within Chapter 1 of Part 3 of ITEPA 2003, and
(b)
any amount that is treated as earnings by virtue of section
226A of that Act (employee shareholder shares) (but see also
section 1038B of this Act),
35

except that it does not include any amount of exempt income (within
the meaning of section 8 of ITEPA 2003).”
26
In section 1018(1) (acquisition of shares pursuant to option: relief if shares
neither restricted nor convertible), after “section 1020” insert “and, in the
case of employee shareholder shares, section 1038B”.
40

Finance (No. 2) Bill
Schedule 22 — Employee shareholder shares
Part 3 — Corporation tax
338

27
In section 1019(1) (acquisition of shares pursuant to option: relief if shares
are restricted or convertible), after “section 1020” insert “and, in the case of
employee shareholder shares, section 1038B”.
28
In section 1022 (takeover of company whose shares are subject to option),
after subsection (4) insert—
5
“(5)
Where the shares are employee shareholder shares, this section is
subject to section 1038B.”
29
In section 1026 (restricted shares: relief available on chargeable event), after
subsection (4) insert—
“(5)
Where the shares are employee shareholder shares, this section is
10
subject to section 1038B.”
30
In section 1027 (restricted shares: relief available on death of employee), after
subsection (4) insert—
“(5)
Where the shares are employee shareholder shares, this section is
subject to section 1038B.”
15
31
In section 1033 (convertible securities: relief available on chargeable event),
after subsection (4) insert—
“(5)
Where the shares are employee shareholder shares, this section is
subject to section 1038B.”
32
In section 1034 (convertible securities: relief available following death of
20
employee), after subsection (4) insert—
“(5)
Where the shares are employee shareholder shares, this section is
subject to section 1038B.”
33    (1)
At the end of Chapter 6 of Part 12 insert—
“1038B
Employee shareholder shares
25
For the purposes of this Part, any payment treated as made under
section 226B of ITEPA 2003 (employee treated as paying £2000 for
employee shareholder shares) in respect of the acquisition of shares
is to be ignored when determining—
(a)
whether a person is subject to a charge to tax under that Act,
30
(b)
the amount that counts (or would have counted) as
employment income under that Act, or
(c)
the consideration given by a person in relation to the
acquisition of the shares.”
      (2)
Accordingly, in the heading for that Chapter, at the end insert “ETC”.
35
34
In section 1292 (provision of qualifying benefits), after subsection (6)
insert—
“(6ZA)
In determining whether condition A or B is met, any payment treated
as made under section 226B of ITEPA 2003 (deemed payment for
employee shareholder shares) is to be ignored.”
40
35
In section 1293 (timing and amount of certain qualifying benefits), after

Finance (No. 2) Bill
Schedule 23 — EMI options and entrepreneurs’ relief etc
339

subsection (5) insert—
“(5A)
In determining for the purposes of subsections (3) and (5) the amount
that is, or would be, charged to tax under ITEPA 2003, any payment
treated as made under section 226B of that Act (deemed payment for
employee shareholder shares) is to be ignored.”
5
36
In Schedule 4 (index of definitions), at the appropriate place insert—

“employee shareholder share (in Part
section 226A(6) of ITEPA 2003

12)
(see section 1005 of this Act)”.

Part 4
Commencement
10
37
The amendments made by this Schedule come into force in accordance with
provision made by the Treasury by order made by statutory instrument.
Schedule 23
Section 63

EMI options and entrepreneurs’ relief etc
Entrepreneurs’ relief to apply to shares acquired under EMI option
15
1     (1)
In Chapter 3 of Part 5 of TCGA 1992 (entrepreneurs’ relief) section 169I
(material disposal of business assets) is amended as follows.
      (2)
In subsection (5) for “or B” substitute “, B, C or D”.
      (3)
After subsection (7) insert—
“(7A)
Condition C is that—
20
(a)
the assets disposed of are relevant EMI shares,
(b)
the option grant date is, or is before, the first date of the
period of 1 year ending with the date of the disposal, and
(c)
throughout that period of 1 year—
(i)
the company is either a trading company or the
25
holding company of a trading group, and
(ii)
the individual is an officer or employee of the
company or (if the company is a member of a trading
group) of one or more companies which are members
of the trading group.
30
(7B)
Condition D is that—
(a)
the assets disposed of are relevant EMI shares acquired by
the individual before the cessation date,
(b)
the option grant date is, or is before, the first date of the
period of 1 year ending with the cessation date,
35
(c)
the conditions in paragraph (c) of subsection (7A) are met
throughout that period of 1 year, and

Finance (No. 2) Bill
Schedule 23 — EMI options and entrepreneurs’ relief etc
340

(d)
the cessation date is within the period of 3 years ending with
the date of the disposal.
(7C)
In this section “relevant EMI shares” means—
(a)
shares of a company acquired by an individual to which
subsection (7D) applies, or
5
(b)
shares of a company to which subsection (7F) applies.
(7D)
This subsection applies to shares of a company acquired by an
individual if the individual—
(a)
acquires them on or after 6 April 2013, and
(b)
acquires them as a result of the exercise of a qualifying option
10
within the meaning given by section 527(4) of ITEPA 2003
(enterprise management incentives) where the option is
exercised on or before the tenth anniversary of the date
mentioned in section 529(2) of that Act.
(7E)
Subsection (7D) does not apply to shares acquired as a result of the
15
exercise of a qualifying option if—
(a)
a disqualifying event (see section 533 of ITEPA 2003) occurs
in relation to the option before its exercise, and
(b)
it is exercised later than the period mentioned in section
532(1)(b) of ITEPA 2003.
20
(7F)
This subsection applies to shares of a company if—
(a)
the shares are the new holding in a case in which section 127
applies in relation to an individual,
(b)
the original shares in that case are relevant EMI shares
(whether by virtue of subsection (7D) or this subsection), and
25
(c)
that case is one in which section 127 applies by virtue only
of—
(i)
section 126, or
(ii)
subject to subsection (7G), section 135(3).
(7G)
Subsection (7F)(c)(ii) applies only if—
30
(a)
the exchange of shares in question is a qualifying exchange of
shares as defined in paragraph 40 of Schedule 5 to ITEPA
2003, and
(b)
when the exchange occurs, the independence requirement
(see paragraph 9 of Schedule 5 to ITEPA 2003) and the
35
trading activities requirement (see paragraphs 13 and 14 of
that Schedule) are met in relation to the new company (see
paragraph 40(1)(a) of that Schedule).
(7H)
In this section “the original relevant EMI shares”, in relation to shares
which are relevant EMI shares by virtue of subsection (7F), means the
40
shares originally acquired by the individual to which subsection (7D)
applied.
(7I)
If the shares disposed of are relevant EMI shares by virtue of
subsection (7F), in relation to times before the reorganisation
mentioned in section 127, in subsection (7A)(c) references to the
45
company are to be read as references to (if different)—
(a)
the company whose shares are the original relevant EMI
shares, or

Finance (No. 2) Bill
Schedule 23 — EMI options and entrepreneurs’ relief etc
341

(b)
if there has been more than one reorganisation since the
original relevant EMI shares were acquired—
(i)
the company whose shares are the original relevant
EMI shares, or
(ii)
if at the time in question the individual is holding
5
relevant EMI shares which are shares of another
company, that other company.

This subsection is subject to subsection (7N).
(7J)
If the shares disposed of are relevant EMI shares by virtue of
subsection (7F), the question of whether the requirement of
10
subsection (7B)(a) is met is to be determined by reference to the date
of the acquisition of the original relevant EMI shares.
(7K)
Subject to what follows, in subsections (7A)(b) and (7B)(b) “the
option grant date” means the date on which the qualifying option in
question was granted.
15
(7L)
Subsections (7M) and (7N) apply if the qualifying option is a
replacement option for the purposes of the EMI code (see paragraph
41 of Schedule 5 to ITEPA 2003).
(7M)
In subsections (7A)(b) and (7B)(b) “the option grant date” means—
(a)
the date on which the old option was granted, or
20
(b)
if the old option was also a replacement option, the date on
which the earlier old option was granted,

and so on.
(7N)
In relation to any time during the currency of an old option taken
into account under subsection (7M), in subsection (7A)(c) references
25
to the company are to be read as references to the company whose
shares were the subject of the old option.
(7O)
In subsection (7B) “the cessation date” means the date on which the
company—
(a)
ceases to be a trading company without continuing to be or
30
becoming a member of a trading group, or
(b)
ceases to be a member of a trading group without continuing
to be or becoming a trading company.
(7P)
Subsections (7Q) and (7R) apply in relation to a disposal of relevant
EMI shares if—
35
(a)
the shares were acquired as a result of the exercise of a
qualifying option where—
(i)
a disqualifying event (see section 533 of ITEPA 2003)
occurs in relation to the option before its exercise, but
(ii)
it is exercised within the period mentioned in section
40
532(1)(b) of ITEPA 2003, or
(b)
if the shares are relevant EMI shares by virtue of subsection
(7F), the original relevant EMI shares were acquired as
mentioned in paragraph (a).
(7Q)
Subsection (7A)(b) has effect as if the reference to the date of the
45
disposal were a reference to the date of the disqualifying event.