Finance (No. 2) Bill (HC Bill 154)

(i) the compromise, scheme or arrangement,

(ii) the general offer, or

(iii) the takeover offer,

not been made, or

(b) 5had any arrangements for the making of—

(i) a compromise, arrangement or scheme which would
fall within subsection (9),

(ii) a general offer which would fall within subsection
(10), or

(iii) 10a takeover offer (as defined in section 974 of the
Companies Act 2006) which would fall within
subsection (12),

which were in place or under consideration at any time not
been in place or under consideration.

(7) 15In subsection (6) the reference to shares being awarded to the
participant is to be read, in the case of dividend shares, as a reference
to the shares being acquired by the trustees on the participant’s
behalf.

(8) In subsection (6)(b) “arrangements” includes any plan, scheme,
20agreement or understanding, whether or not legally enforceable.

(9) A compromise, arrangement or scheme falls within this subsection if
it is applicable to or affects—

(a) all the ordinary share capital of the relevant company or all
the shares of the same class as the relevant shares, or

(b) 25all the shares, or all the shares of that same class, which are
held by a class of shareholders identified otherwise than by
reference to their employment or their participation in an
approved SIP.

(10) A general offer falls within this subsection if—

(a) 30it is made to holders of shares of the same class as the relevant
shares or to holders of shares in the relevant company, and

(b) it is made in the first instance on a condition such that if it is
satisfied the person making the offer will have control of the
relevant company.

(11) 35In subsection (10)(b) “control” has the meaning given by sections 450
and 451 of CTA 2010.

(12) A takeover offer falls within this subsection if—

(a) it relates to the relevant company, and

(b) where there is more than one class of share in the relevant
40company, the class or classes to which it relates is or include
the class of the relevant shares.”

20 (1) In Part 5 of Schedule 2 (free shares) in paragraph 37 (holding period: power
of participant to direct trustees to accept general offers etc) after sub-
paragraph (6) insert—

“(7) 45If in the case of a takeover offer (as defined in section 974 of the
Companies Act 2006) there arises a right under section 983 of that
Act to require the offeror to acquire the participant’s free shares,

or such of them as are of a particular class, the participant may
direct the trustees to exercise that right.”

(2) A SIP approved before the day on which this Act is passed has effect with
any modifications needed to reflect the amendment made by this paragraph.

5SAYE option schemes

21 In section 519 (no charge in respect of exercise of option) after subsection (3)
insert—

“(3A) In relation to any shares acquired by the exercise of the share option,
no liability to income tax arises in respect of its exercise if—

(a) 10the individual exercises the option before the third
anniversary of the date on which the option was granted at a
time when the SAYE option scheme is approved,

(b) the option is exercised by virtue of a provision included in the
scheme—

(i) 15under paragraph 37(1) of Schedule 3 where the
relevant date is the relevant date for the purposes of
paragraph 37(2) or (4), or

(ii) under paragraph 37(6) of Schedule 3,

(c) as a result of, as the case may be—

(i) 20the general offer,

(ii) the compromise or arrangement, or

(iii) the takeover offer,

the individual receives cash (and no other assets) in exchange
for the shares,

(d) 25when the decision to grant the option was taken—

(i) the general offer,

(ii) the compromise or arrangement, or

(iii) the takeover offer,

as the case may be, had not been made,

(e) 30when that decision was taken, no arrangements were in place
or under consideration for—

(i) the making of a general offer which would fall within
subsection (3D),

(ii) the making of any compromise or arrangement which
35would fall within subsection (3F), or

(iii) the making of a takeover offer (as defined in section
974 of the Companies Act 2006) which would fall
within subsection (3G),

(f) if the scheme includes a provision under paragraph 38 of
40Schedule 3 (“the paragraph 38 provision”), in connection
with—

(i) the general offer,

(ii) the compromise or arrangement, or

(iii) the takeover offer,

45as the case may be, no course of action was open to the
individual which, had it been followed, would have resulted
in the individual making an agreement under the paragraph

38 provision which would have prevented the individual
from acquiring the shares by the exercise of the option, and

(g) the avoidance of tax or national insurance contributions is not
the main purpose (or one of the main purposes) of any
5arrangements under which the option was granted or is
exercised.

(3B) In subsection (3A)(c)(iii), (d)(iii) and (f)(iii) “the takeover offer”
means the takeover offer (as defined in section 974 of the Companies
Act 2006) giving rise to the application of sections 979 to 982 or 983
10to 985 of that Act.

(3C) In subsection (3A)(e) “arrangements” includes any plan, scheme,
agreement or understanding, whether or not legally enforceable.

(3D) A general offer falls within this subsection if it is—

(a) a general offer to acquire the whole of the issued ordinary
15share capital of the relevant company which is made on a
condition such that, if it is met, the person making the offer
will have control of the relevant company, or

(b) a general offer to acquire all the shares in the relevant
company which are of the same class as those acquired by the
20exercise of the option.

(3E) For the purposes of subsection (3D)(a) a person is to be treated as
obtaining control of a company if that person and others acting in
concert together obtain control of it.

(3F) A compromise or arrangement falls within this subsection if it is
25applicable to or affects—

(a) all the ordinary share capital of the relevant company or all
the shares of the same class as those acquired by the exercise
of the option, or

(b) all the shares, or all the shares of that same class, which are
30held by a class of shareholders identified otherwise than by
reference to their employment or directorships or their
participation in an approved SAYE option scheme.

(3G) A takeover offer falls within this subsection if—

(a) it relates to the relevant company, and

(b) 35where there is more than one class of share in the relevant
company, the class or classes to which it relates is or include
the class of the shares acquired by the exercise of the option.

(3H) In subsections (3D), (3F) and (3G) “the relevant company” means the
company whose shares are acquired by the exercise of the option.”

22 40Part 6 of Schedule 3 (requirements etc relating to share options) is amended
as follows.

23 (1) Paragraph 34 (exercise of options: scheme-related employment ends) is
amended as follows.

(2) In sub-paragraph (2)—

(a) 45omit the “or” after paragraph (a), and

(b) after paragraph (b) insert—

“(c) a relevant transfer within the meaning of the
Transfer of Undertakings (Protection of
Employment) Regulations 2006, or

(d) 5if P holds office or is employed in a company which
is an associated company (as defined in paragraph
35(4)) of the scheme organiser, that company
ceasing to be an associated company of the scheme
organiser by reason of a change of control (as
10determined in accordance with sections 450 and
451 of CTA 2010),”.

(3) In sub-paragraphs (4) and (5A)(b) for “or (b)” substitute “to (d)”.

(4) A SAYE option scheme approved before the day on which this Act is passed
has effect with any modifications needed to reflect the amendments made by
15this paragraph.

24 (1) Paragraph 37 (exercise of options: company events) is amended as follows.

(2) In sub-paragraph (4) for the words from “proposed” to the end substitute
“applicable to or affecting—

“(a) all the ordinary share capital of the company or all the
20shares of the same class as the shares to which the option
relates, or

(b) all the shares, or all the shares of that same class, which are
held by a class of shareholders identified otherwise than
by reference to their employment or directorships or their
25participation in an approved SAYE option scheme.”

(3) A SAYE option scheme approved before the day on which this Act is passed
which contains provision under paragraph 37(1) of Schedule 3 to ITEPA
2003 by reference to paragraph 37(4) has effect with any modifications
needed to reflect the amendment made by sub-paragraph (2).

(4) 30In sub-paragraph (6)—

(a) after “982” insert “or 983 to 985”, and

(b) after “shareholder” insert “etc”.

(5) A SAYE option scheme approved before the day on which this Act is passed
which contains provision under paragraph 37(6) of Schedule 3 to ITEPA
352003 has effect with any modifications needed to reflect the amendments
made by sub-paragraph (4).

25 (1) In Part 7 of Schedule 3 (exercise of share options) in paragraph 38 (exchange
of options on company reorganisation) in sub-paragraph (2)(c)—

(a) after “982” insert “or 983 to 985”, and

(b) 40after “shareholder” insert “etc”.

(2) A SAYE option scheme approved before the day on which this Act is passed
which contains provision under paragraph 38 of Schedule 3 to ITEPA 2003
has effect with any modifications needed to reflect the amendments made by
this paragraph.

CSOP schemes

26 (1) Section 524 (no charge in respect of exercise of option) is amended as
follows.

(2) In subsection (2B) for paragraph (a) substitute—

“(a) 5has ceased to be in qualifying employment because of—

(i) injury, disability, redundancy or retirement,

(ii) a relevant transfer within the meaning of the Transfer
of Undertakings (Protection of Employment)
Regulations 2006, or

(iii) 10in the case of a group scheme where the qualifying
employment is as a director or employee of a
constituent company, that company ceasing to be
controlled by the scheme organiser, and”.

(3) After subsection (2B) insert—

“(2BA) 15For the purposes of subsection (2B) an individual is in “qualifying
employment” if the individual is a full-time director or qualifying
employee (as defined in paragraph 8(2) of Schedule 4) of—

(a) the scheme organiser, or

(b) in the case of a group scheme, a constituent company.”

(4) 20In subsection (2C) for “(2B)” substitute “(2B)(a)(i)”.

(5) After subsection (2C) insert—

“(2D) Subsection (2B)(a)(iii) does not cover a case where the constituent
company was controlled by the scheme organiser by virtue of
paragraph 34 of Schedule 4 (jointly owned companies).

(2E) 25In relation to any shares acquired by the exercise of the share option,
no liability to income tax arises in respect of its exercise if—

(a) the individual exercises the option before the third
anniversary of the date on which the option was granted at a
time when the CSOP scheme is approved,

(b) 30the option is exercised by virtue of a provision included in the
scheme under paragraph 25A of Schedule 4,

(c) as a result of, as the case may be—

(i) the general offer,

(ii) the compromise or arrangement, or

(iii) 35the takeover offer,

the individual receives cash (and no other assets) in exchange
for the shares,

(d) when the decision to grant the option was taken—

(i) the general offer,

(ii) 40the compromise or arrangement, or

(iii) the takeover offer,

as the case may be, had not been made,

(e) when that decision was taken, no arrangements were in place
or under consideration for—

(i) 45the making of a general offer which would fall within
subsection (2H),

(ii) the making of any compromise or arrangement which
would fall within subsection (2J), or

(iii) the making of a takeover offer (as defined in section
974 of the Companies Act 2006) which would fall
5within subsection (2K),

(f) if the scheme includes a provision under paragraph 26 of
Schedule 4 (“the paragraph 26 provision”), in connection
with—

(i) the general offer,

(ii) 10the compromise or arrangement, or

(iii) the takeover offer,

as the case may be, no course of action was open to the
individual which, had it been followed, would have resulted
in the individual making an agreement under the paragraph
1526 provision which would have prevented the individual
from acquiring the shares by the exercise of the option, and

(g) the avoidance of tax or national insurance contributions is not
the main purpose (or one of the main purposes) of any
arrangements under which the option was granted or is
20exercised.

(2F) In subsection (2E)(c)(iii), (d)(iii) and (f)(iii) “the takeover offer”
means the takeover offer (as defined in section 974 of the Companies
Act 2006) giving rise to the application of sections 979 to 982 or 983
to 985 of that Act.

(2G) 25In subsection (2E)(e) “arrangements” includes any plan, scheme,
agreement or understanding, whether or not legally enforceable.

(2H) A general offer falls within this subsection if it is—

(a) a general offer to acquire the whole of the issued ordinary
share capital of the relevant company which is made on a
30condition such that, if it is met, the person making the offer
will have control of the relevant company, or

(b) a general offer to acquire all the shares in the relevant
company which are of the same class as those acquired by the
exercise of the option.

(2I) 35For the purposes of subsection (2H)(a) a person is to be treated as
obtaining control of a company if that person and others acting in
concert together obtain control of it.

(2J) A compromise or arrangement falls within this subsection if it is
applicable to or affects—

(a) 40all the ordinary share capital of the relevant company or all
the shares of the same class as those acquired by the exercise
of the option, or

(b) all the shares, or all the shares of that same class, which are
held by a class of shareholders identified otherwise than by
45reference to their employment or directorships or their
participation in an approved CSOP scheme.

(2K) A takeover offer falls within this subsection if—

(a) it relates to the relevant company, and

(b) where there is more than one class of share in the relevant
company, the class or classes to which it relates is or include
the class of the shares acquired by the exercise of the option.

(2L) In subsections (2H), (2J) and (2K) “the relevant company” means the
5company whose shares are acquired by the exercise of the option.”

27 Part 5 of Schedule 4 (requirements etc relating to share options) is amended
as follows.

28 In paragraph 21 (introduction) in sub-paragraph (2)—

(a) after the entry for paragraph 24 omit “or”, and

(b) 10after the entry for paragraph 25 insert “, or

(None) paragraph 25A (exercise of options: company
events)”.

29 After paragraph 25 insert—

“Exercise of options: company events

25A (1) 15The scheme may provide that share options relating to shares in a
company may be exercised within 6 months after the relevant date
for the purposes of sub-paragraph (2) or (4).

(2) The relevant date for the purposes of this sub-paragraph is the
date when—

(a) 20a person has obtained control of the company as a result of
making an offer falling within sub-paragraph (3), and

(b) any condition subject to which the offer is made has been
satisfied.

(3) An offer falls within this sub-paragraph if it is—

(a) 25a general offer to acquire the whole of the issued ordinary
share capital of the company which is made on a condition
such that, if it is met, the person making the offer will have
control of the company, or

(b) a general offer to acquire all the shares in the company
30which are of the same class as the shares to which the
option relates.

(4) The relevant date for the purposes of this sub-paragraph is the
date when the court sanctions under section 899 of the Companies
Act 2006 (court sanction for compromise or arrangement) a
35compromise or arrangement applicable to or affecting—

“(a) all the ordinary share capital of the company or all the
shares of the same class as the shares to which the option
relates, or

(b) all the shares, or all the shares of that same class, which are
40held by a class of shareholders identified otherwise than
by reference to their employment or directorships or their
participation in an approved CSOP scheme.”

(5) The scheme may provide that share options relating to shares in a
company may be exercised at any time when any person is bound
45or entitled to acquire shares in the company under sections 979 to

982 or 983 to 985 of the Companies Act 2006 (takeover offers: right
of offeror to buy out minority shareholder etc).

(6) For the purposes of this paragraph a person is to be treated as
obtaining control of a company if that person and others acting in
5concert together obtain control of it.”

30 (1) In Part 6 of Schedule 4 (exercise of share options) in paragraph 26 (exchange
of options on company reorganisation) in sub-paragraph (2)(c)—

(a) after “982” insert “or 983 to 985”, and

(b) after “shareholder” insert “etc”.

(2) 10A CSOP scheme approved before the day on which this Act is passed which
contains provision under paragraph 26 of Schedule 4 to ITEPA 2003 has
effect with any modifications needed to reflect the amendments made by
this paragraph.

Part 3 15Material interest rules

Introduction

31 Part 7 of ITEPA 2003 (employment income: income and exemptions relating
to securities) is amended as follows.

Share incentive plans

32 20Part 3 of Schedule 2 (eligibility of individuals) is amended as follows.

33 In paragraph 13 (introduction)—

(a) after the entry for paragraph 18 insert “and”, and

(b) omit the entry for paragraph 19 and the “and” before it.

34 In paragraph 14 (time of eligibility to participate) in sub-paragraph (7)—

(a) 25after paragraph (b) insert “and”, and

(b) omit paragraph (c) and the “and” before it.

35 Omit paragraphs 19 to 24 (the “no material interest” requirement).

36 In Part 11 of Schedule 2 (supplementary provisions) in paragraph 100 (index
of defined expressions), in the entry for “close company”, omit “(and see
30paragraph 20(4))”.

37 (1) The amendments made by paragraphs 32 to 36 above have effect for the
purpose of determining whether an individual is eligible to participate in an
award of shares on the day on which this Act is passed or any later day.

(2) A SIP approved before the day on which this Act is passed has effect
35accordingly with the omission of any provision falling within a provision of
Schedule 2 to ITEPA 2003 omitted by those paragraphs.

SAYE option schemes

38 Part 3 of Schedule 3 (eligibility of individuals) is amended as follows.

39 In paragraph 9 (introduction) omit the entry for paragraph 11 and the “and”
before it.

40 Omit paragraphs 11 to 16 (the “no material interest” requirement).

41 In Part 9 of Schedule 3 (supplementary provisions) in paragraph 49 (index
5of defined expressions), in the entry for “close company”, omit “(and see
paragraph 11(4))”.

42 (1) The amendments made by paragraphs 38 to 41 above have effect for the
purpose of determining whether an individual is eligible to participate in a
scheme on the day on which this Act is passed or any later day.

(2) 10A SAYE option scheme approved before the day on which this Act is passed
has effect accordingly with the omission of any provision falling within a
provision of Schedule 3 to ITEPA 2003 omitted by those paragraphs.

CSOP schemes

43 (1) In Part 3 of Schedule 4 (eligibility of individuals) in paragraphs 10(2) and (3),
1511(3) and (4) and 13(2) (which relate to the “no material interest”
requirement) for “25%” substitute “30%”.

(2) The amendments made by this paragraph have effect for the purpose of
determining whether a person is eligible to participate in a scheme on the
day on which this Act is passed or any later day (by altering what constitutes
20a material interest on that day and within the 12 months preceding that day).

(3) A CSOP scheme approved before the day on which this Act is passed has
effect with any modifications needed to reflect the amendments made by
this paragraph.

Part 4 25Restricted shares

Introduction

44 Part 7 of ITEPA 2003 (employment income: income and exemptions relating
to securities) is amended as follows.

Share incentive plans

45 30Part 4 of Schedule 2 (types of shares that may be awarded) is amended as
follows.

46 In paragraph 25 (introduction) in sub-paragraph (1)—

(a) after the entry for paragraph 28 insert “and”, and

(b) omit the entry for paragraph 30 and the “and” before it.

47 35Omit paragraphs 30 to 33 (only certain kinds of restrictions allowed).

48 In Part 5 of Schedule 2 (free shares) in paragraph 35 (maximum annual
award) omit sub-paragraphs (3) and (4).

49 In Part 6 of Schedule 2 (partnership shares) in paragraph 43 (introduction)

after sub-paragraph (2) insert—

“(2A) The plan must provide that partnership shares are not to be subject
to any provision for forfeiture.”

50 In Part 7 of Schedule 2 (matching shares) in paragraph 59 (general
5requirement for matching shares) omit sub-paragraph (2).

51 In Part 9 of Schedule 2 (trustees) in paragraph 75 (duty to give notice of
award of shares etc) in sub-paragraphs (2) and (3) after paragraph (a)
insert—

“(aa) if the shares are subject to any restriction, giving details of
10the restriction,”.

52 (1) In Part 10 of Schedule 2 (approval of plans) paragraph 84 (disqualifying
events) is amended as follows.

(2) In sub-paragraph (3)—

(a) after paragraph (b) insert “or”, and

(b) 15omit paragraph (c) and the “or” after it.

(3) In sub-paragraph (4) before paragraph (a) insert—

“(za) from any shares being subject to a restriction,”.

53 Part 11 of Schedule 2 (supplementary provision) is amended as follows.

54 In paragraph 92 (determination of market value) for sub-paragraph (2)
20substitute—

“(2) For the purposes of this Schedule the market value of shares
subject to a restriction is to be determined as if they were not
subject to the restriction.”

55 In paragraph 99 (minor definitions) after sub-paragraph (3) insert—

“(4) 25For the purposes of the SIP code—

(a) shares are subject to a “restriction” if there is any contract,
agreement, arrangement or condition which makes
provision to which any of subsections (2) to (4) of section
423 (restricted securities) would apply if the references in
30those subsections to the employment-related securities
were to the shares, and

(b) the “restriction” is that provision.”

56 In paragraph 100 (index of defined expressions) at the appropriate place
insert—

57 (1) The amendments made by paragraphs 45 to 47 and 49 to 51 above have effect
in relation to awards of shares made on or after the day on which this Act is
passed.

(2) 40A SIP approved, or a trust instrument made, before that day has effect with
any modifications needed to reflect the amendments made by paragraphs 45
to 56 above.