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.

 
 

 
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Revised 28 March 2013