place insert—

“(none) section 226A (amount treated as earnings: employee
shareholder shares).”

3 In Chapter 12 of Part 3, after section 226 insert—

5“Shares of employee shareholders

226A Amount treated as earnings

(1) This section applies if shares having a market value of no less than
£2000 are acquired by an employee in consideration of an employee
shareholder agreement.

(2) 10An amount calculated in accordance with subsection (3) is to be
treated as earnings from the employment, in respect of the
acquisition of the shares, for the tax year in which they are acquired.

But this is subject to subsection (4).

But this is subject to subsection (4).

(3) 15The amount is—

But if P exceeds MV, the amount is nil.

But if P exceeds MV, the amount is nil.

(4) If the shares are acquired pursuant to an employment-related
securities option, subsection (2) does not apply.

(5) 25If subsection (2) applies, nothing else constitutes earnings under this
Part from the employment in respect of the acquisition of the shares.

(6) For the purposes of this section and sections 226B to 226D—

• shares are “acquired” by an employee if the employee becomes
  beneficially entitled to them (and they are acquired at the
  30time when the employee becomes so entitled);

• “employee shareholder agreement” means an agreement by
  virtue of which an employee is an employee shareholder (see
  section 205A(1)(a) to (c) of the Employment Rights Act 1996);

• “employee shareholder share” means a share acquired by an
  35employee in consideration of an employee shareholder
  agreement;

• “employee” and “employer company”, in relation to an
  employee shareholder agreement, mean the individual and
  the company which enter into the agreement;

• 40“employment-related securities option” has the same meaning
  as in Chapter 5 of Part 7 (see section 471(5));

• “market value” has the same meaning as it has for the purposes
  of TCGA 1992 by virtue of Part 8 of that Act; and the market
  value of shares is their market value on the day on which they
  45are acquired (but see also subsection (7)).

(7) For the purposes of subsection (1), the market value of the shares is
to be determined ignoring—

(a) any election under section 431 (election for market value of
restricted shares to be calculated as if not restricted), and

(b) section 437 (market value of convertible securities to be
determined as if not convertible).

226B 5Deemed payment for employee shareholder shares

(1) This section applies if shares having a market value of no less than
£2000 are acquired by an employee in consideration of an employee
shareholder agreement.

(2) Where all the shares acquired in consideration of the agreement are
10acquired on the same day, the employee is to be treated, for the
purposes of this Act, as having made on that day a payment of £2000
for those shares.

(3) Where—

(a) shares are acquired by the employee in consideration of the
15agreement on more than one day, and

(b) of those shares, shares having a market value of not less than
£2000 are acquired on the first of those days,

the employee is to be treated for the purposes of this Act as having
made, on the first of those days, a payment of £2000 for the shares
20acquired on that day.

(4) If the market value of the shares acquired by the employee on the day
mentioned in subsection (2) or (3)(b) exceeds £2000, the amount of
the payment under subsection (2) or (3) which the employee is to be
treated as having made for each of the shares is an amount equal to
25the appropriate proportion of the market value of that share.

(5) The “appropriate proportion” is the following—

(6) 30This section is subject to—

(a) section 226C (only one payment deemed to be made under
agreements with associated companies), and

(b) section 226D (no deemed payment if shareholder or a
connected person has a material interest in the company).

(7) 35Except as provided by this section, for the purposes of this Act the
employee is to be treated as having given no consideration for shares
acquired in consideration of the agreement.

(8) Section 226A(7) applies for the purposes of this section as it applies
for the purposes of section 226A(1).

226C 40Only one payment deemed to be made under associated agreements

(1) An employee who is treated as having made a payment under
section 226B for shares acquired in consideration of an employee
shareholder agreement (“the relevant agreement”) is not to be
treated as having made a payment for any other qualifying shares.

(2) “Qualifying shares” means employee shareholder shares in—

(a) the employer company in relation to the relevant agreement,
or

(b) an associated company of that company,

5which are acquired by the employee in consideration of an
agreement within subsection (3).

(3) An agreement is within this subsection if it is—

(a) another employee shareholder agreement with the same
employer company, or

(b) 10an employee shareholder agreement with an associated
company of that company.

(4) For the purposes of this section—

(a) a company is an “associated company” of another if—

(i) one of the two has control of the other, or

(ii) 15both are under the control of the same person or
persons, and

(b) if a company controls another when an employee
shareholder agreement is entered into with the employee,
paragraph (a) applies as if that continued to be the case (in
20addition to any other circumstances) when any subsequent
employee shareholder agreement is entered into with that
employee.

(5) But subsection (4)(b) does not apply as between two companies if—

(a) one of the companies has been dissolved,

(b) 25the period of two years beginning with the date of the
dissolution has passed, and

(c) the employee has not, at any time in that period, been
engaged in any office or employment (including engagement
under a contract for services) with any company which is an
30associated company of the dissolved company.

(6) In this section “control” is to be read in accordance with sections 450
and 451 of CTA 2010.

226D Shareholder or connected person having material interest in company

(1) No payment is treated as made under section 226B in respect of any
35shares if, on the date on which the shares are acquired—

(a) the employee has a material interest in the employer
company or a relevant parent undertaking, or

(b) the employee is connected with an individual who has a
material interest in the employer company or a relevant
40parent undertaking.

(2) No payment is treated as made under section 226B in respect of any
shares if—

(a) at any time in the period of one year ending with the date on
which the shares are acquired, the employee had a material
45interest in the employer company or a relevant parent
undertaking, or

(b) on the date on which the shares are 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.

(3) Subsections (4) and (5) define “material interest” for the purposes of
this section.

5Those subsections must be read together with subsections (6) to (8).

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—

(a) by A,

(b) 10by 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—

(a) A,

(b) 15persons 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
receive at least 25% of the assets that would then be available for
20distribution 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.

(7) The first condition is that—

(a) 25A,

(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
any existing rights) give A a material interest in the company.

(8) 30The 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
with A together,

35which 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—

• “arrangements” includes any agreement, understanding,
  40scheme, transaction or series of transactions (whether or not
  legally enforceable);

• “close company” includes a company that would be a close
  company but for—

  (a)

  section 442(a) of CTA 2010 (exclusion of companies
  45not resident in the United Kingdom), or

  (b)

  sections 446 and 447 of CTA 2010 (exclusion of certain
  quoted companies);

Finance (No. 2) BillPage 324

• “relevant parent undertaking” means any parent undertaking
  of the employer company and for this purpose “parent
  undertaking” is to be read in accordance with section 1162 of
  the Companies Act 2006.”

4 5In consequence of the amendment made by paragraph 3—

(a) in the heading to Chapter 12 of Part 3, for “Payments” substitute
“Other amounts”, and

(b) before section 221 insert the heading “Payments”.

5 In section 428 (restricted securities: amount of charge on occurrence of
10chargeable event), in subsection (7), after paragraph (b) insert—

“(ba) any amount treated as earnings from the employee’s
employment under section 226A (employee shareholder
shares: amount treated as earnings) in respect of the
acquisition of the employment-related securities (other than
15an amount of exempt income),”.

6 In section 431 (election for full or partial disapplication of Chapter 2
(restricted securities)), in subsection (3), after paragraph (a) insert—

“(aa) determining any amount that is to be treated as earnings
from the employment where section 226A applies (employee
20shareholder shares: amount treated as earnings),”.

7 In section 437 (convertible securities: adjustment of charge), in subsection
(1)(a), after “charge)” insert “, section 226A (employee shareholder shares:
amount treated as earnings)”.

8 In section 446B (charge on acquisition of securities with artificially
25depressed market value), in subsection (4), after paragraph (b) insert—

“(ba) section 226A (employee shareholder shares: amount treated
as earnings),”.

9 In section 446T (securities acquired for less than market value: amount of
notional loan), in subsection (3), after paragraph (b) insert—

“(ba) 30any amount treated as earnings from the employee’s
employment under section 226A (employee shareholder
shares: amount treated as earnings) in respect of the
acquisition of the employment-related securities (other than
an amount of exempt income),”.

10 35In section 446V (Chapter 3C to be additional to other income tax charges),
after paragraph (b) insert—

“(ba) section 226A (employee shareholder shares: amount treated
as earnings),”.

11 In section 452 (shares in research institution spin-out companies: market
40value on acquisition), in subsection (2), after paragraph (a) insert—

“(aa) determining any amount that is to be treated as earnings
from the employment under section 226A (employee
shareholder shares: amount treated as earnings),”.

12 In section 479 (securities options: amount of gain realised on chargeable
45event), after subsection (3) insert—

“(3A) Sections 226B to 226D (deemed payment for acquisition of employee
shareholder shares) provide for the determination of the amount of

consideration, if any, which is given for employee shareholder
shares (within the meaning of section 226A(6)).”

13 In section 531 (enterprise management incentives: limitation of charge
where shares acquired below market value), after subsection (3) insert—

“(3A) 5Sections 226B to 226D (deemed payment for acquisition of employee
shareholder shares) provide for the determination of the amount, if
any, for which employee shareholder shares (within the meaning of
section 226A(6)) are acquired.”

14 (1) Section 532 (enterprise management incentives: consequences after
10disqualifying events) is amended as follows.

(2) After subsection (4) insert—

“(4A) Sections 226B to 226D (deemed payment for acquisition of employee
shareholder shares) provide for the determination of the amount, if
any, for which employee shareholder shares (within the meaning of
15section 226A(6)) are acquired.”

(3) In subsection (5), for “those subsections” substitute “subsections (2) and (3)”.

15 In section 554N (exclusions: other cases involving employment-related
securities etc), in subsection (7)(b), after “Part 3” insert “, or an amount
treated under section 226A as earnings of A,”.

16 20In Chapter 3 of Part 4 of ITTOIA 2005 (tax on dividends etc from UK
companies), after section 385 insert—

“Purchase by company of exempt employee shareholder shares

385A No charge to tax on purchase by company of exempt employee
shareholder shares

(1) 25No tax is charged under this Chapter on the amount or value of a
payment made by a company on the purchase of shares from an
individual if—

(a) the payment is made in respect of shares in the company,

(b) the shares are exempt employee shareholder shares, and

(c) 30at the time of the disposal, the individual is not an employee
of, or an office-holder in, the employer company or an
associated company of that company.

(2) In this section—

• “exempt employee shareholder share”, “employer company”
  35and “associated company” have the same meaning as in
  sections 236B to 236D of TCGA 1992 (capital gains tax
  treatment of employee shareholder shares);

• “in respect of shares in the company” has the same meaning as
  in Part 23 of CTA 2010 (company distributions) (see section
  401113 of that Act).”

Part 2 Capital gains tax exemption for employee shareholder shares

17 TCGA 1992 is amended as follows.

18 In section 58(2) (spouses and civil partners: disposals excepted from the
5usual rule)—

(a) omit “or” at the end of paragraph (a), and

(b) after paragraph (b) insert “, or

(c) if the disposal is of exempt employee shareholder
shares (see sections 236B to 236D),”.

19 (1) 10Section 149AA (restricted and convertible employment-related securities) is
amended as follows.

(2) In subsection (1) for “Where” substitute “Subject to subsection (1A), where”.

(3) After that subsection insert—

“(1A) Where an individual has acquired an asset consisting of shares
15which, on acquisition, became employee shareholder shares—

(a) the consideration for the acquisition is (subject to section
119A) to be taken to be equal to any amount that constituted
earnings under Chapter 1 of Part 3 of ITEPA 2003 (earnings)
or section 226A of that Act (employee shareholder shares),
20and

(b) no other consideration is to be treated as having been given
for the acquisition of the shares.”

(4) In subsection (2)—

(a) for “Subsection (1) above applies” substitute “Subsections (1) and
25(1A) apply”, and

(b) for “is” substitute “are”.

(5) After subsection (6) insert—

“(6A) For the purposes of subsection (1A)—

• “employee shareholder share” has the meaning given in section
  30236B(3) (exemption for employee shareholder shares), and

• shares are “acquired” by an individual if the individual
  becomes beneficially entitled to them (and they are so
  acquired at the time when the individual becomes so
  entitled).”

(6) 35In subsection (7)—

(a) for “In subsection (1) the” substitute “In subsections (1) and (1A) a”,
and

(b) after “ITEPA 2003” insert “or was treated as earnings under section
226A of that Act”.

(7) 40Accordingly, in the heading for that section, after “securities” insert “and
employee shareholder shares”.

20 After section 236A insert—

“Employee shareholders

236B Exemption for employee shareholder shares

(1) A gain which accrues on the first disposal of an exempt employee
5shareholder share is not a chargeable gain.

(2) A share is an exempt employee shareholder share if it is—

(a) an employee shareholder share, and

(b) exempt in accordance with sections 236C and 236D.

(3) In this section and sections 236C to 236G—

• 10shares are “acquired” by an employee if the employee becomes
  beneficially entitled to them (and they are acquired at the
  time when the employee becomes so entitled);

• “employee shareholder share” means a share acquired in
  consideration of an employee shareholder agreement and
  15held by the employee;

• “employee shareholder agreement” means an agreement by
  virtue of which an employee is an employee shareholder (see
  section 205A(1)(a) to (c) of the Employment Rights Act 1996);

• “employee” and “employer company”, in relation to an
  20employee shareholder agreement, mean the individual and
  the company which enter into the agreement.

236C Only first £50,000 of shares under associated agreements to be exempt

(1) An employee shareholder share acquired in consideration of an
employee shareholder agreement (“the relevant agreement”) is
25exempt for the purposes of section 236B only if, immediately after its
acquisition, the total value of qualifying shares which have been
acquired by the employee does not exceed £50,000.

(2) “Qualifying share” means an employee shareholder share in—

(a) the employer company in relation to the relevant agreement,
30or

(b) an associated company of that company,

which is acquired by the employee in consideration of an agreement
within subsection (3).

(3) An agreement is within this subsection if it is—

(a) 35the relevant agreement,

(b) another employee shareholder agreement with the same
employer company, or

(c) an employee shareholder agreement with an associated
company of that company.

(4) 40For the purposes of this section—

(a) a company is an “associated company” of another if—

(i) one of the two has control of the other, or

(ii) both are under the control of the same person or
persons, and

(b) if a company controls another when an employee
shareholder agreement is entered into with the employee,
paragraph (a) applies as if that continued to be the case (in
addition to any other circumstances) when any subsequent
5employee shareholder agreement is entered into with that
employee.

(5) But subsection (4)(b) does not apply as between two companies if—

(a) one of the companies has been dissolved,

(b) the period of two years beginning with the date of the
10dissolution has passed, and

(c) the employee has not, at any time in that period, been
engaged in any office or employment (including engagement
under a contract for services) with any company which is an
associated company of the dissolved company.

(6) 15If a number of qualifying shares are acquired by an employee on a
day and—

(a) before that day, the value of qualifying shares that have been
acquired by the employee does not exceed £50,000, and

(b) at the end of that day, that value does exceed that sum,

20the appropriate proportion of the shares (rounded down, if
necessary, to the nearest share) is to be treated for the purposes of
subsection (1) as having been acquired separately and before the
others.

(7) The “appropriate proportion” is the following—

25

(8) For the purposes of this section, the value of a share (at any time) is
30its unrestricted market value at the time when it was acquired by the
employee.

(9) The unrestricted market value of a share when it is acquired by an
employee is what the market value of the share would be
immediately after the acquisition, but for any restriction.

35For this purpose “restriction” has the meaning given by section
432(8) of ITEPA 2003 (restricted securities for the purposes of
Chapter 2 of Part 7 of that Act).

For this purpose “restriction” has the meaning given by section
432(8) of ITEPA 2003 (restricted securities for the purposes of
40Chapter 2 of Part 7 of that Act).

236D Shares not exempt if shareholder or connected person has material
interest in company

(1) An employee shareholder share is not exempt for the purposes of
section 236B if, on the date on which the share is acquired—

(a) 45the employee has a material interest in the employer
company or a relevant parent undertaking, or

(b) the employee is connected with an individual who has a
material interest in the employer company or a relevant
parent undertaking.

(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
5interest in the employer company or a relevant parent
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
10the employer company or a relevant parent undertaking.

(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).

Those subsections must be read together with subsections (6) to (8).

(4) 15An individual (“A”) has a material interest in a company if at least
25% of the voting rights in the company are exercisable—

(a) by A,

(b) by persons connected with A, or

(c) by A and persons connected with A together.

(5) 20If a company is a close company, an individual (“A”) has a material
interest in it if—

(a) A,

(b) persons connected with A, or

(c) A and persons connected with A together,

25possess such rights as would, in the event of the winding up of the
company or in any other circumstances, give an entitlement to
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
30material interest in a company at any time if either of the following
conditions is met.

(7) The first condition is that—

(a) A,

(b) persons connected with A, or

(c) 35A and persons connected with A together,

have an entitlement to acquire such rights as would (together with
any existing rights) give A a material interest in the company.

(8) The second condition is that there are arrangements in place
between—

(a) 40the employer company or a relevant parent undertaking, and

(b) A, or persons connected with A, or A and persons connected
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
45company.

(9) In this section—

Finance (No. 2) BillPage 330

• “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
  5company but for—

  (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);

• 10“relevant parent undertaking” means any parent undertaking
  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) 15Sections 104 (share pooling), 105 (disposal on or before acquisition)
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) 20some, but not all, of the shares are exempt employee
shareholder shares, and

(c) the employee disposes of some, but not all, of the shares in
that holding.

(3) Where this subsection applies—

(a) 25the employee may determine what proportion of the shares
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
30apportioned accordingly.

(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 35Reorganisation of share capital involving employee shareholder
shares

(1) Section 127 (equation of original shares and new holding on
reorganisation) does not apply to exempt employee shareholder
shares.

(2) 40The reference in subsection (1) to section 127 includes that section as
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) 45The individual is not to be regarded as disposing of an asset by
reason of the individual ceasing to have, or not acquiring, the rights

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 5Corporation tax

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) 10Section 1009 (relief for employee share acquisitions: employee’s tax
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) 15Relevant earnings” 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).”

(4) After subsection (5) insert—

“(6) 20Where the shares are employee shareholder shares, this section is
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) 25Section 1011 (acquisition of shares: relief if shares are restricted or
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) 30For the purposes of subsections (2) and (3) “relevant earnings”
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
35section 1038B of this Act),

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
40case of employee shareholder shares, section 1038B”.

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),
5after subsection (4) insert—

“(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) 10Where the shares are employee shareholder shares, this section is
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
15subject to section 1038B.”

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 20In section 1034 (convertible securities: relief available following death of
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 25 Employee shareholder shares

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) 30whether a person is subject to a charge to tax under that Act,

(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) 35Accordingly, in the heading for that Chapter, at the end insert “ETC”.

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
40employee shareholder shares) is to be ignored.”

35 In section 1293 (timing and amount of certain qualifying benefits), after

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
5employee shareholder shares) is to be ignored.”

36 In Schedule 4 (index of definitions), at the appropriate place insert—

Part 4 10Commencement

37 The amendments made by this Schedule come into force in accordance with
provision made by the Treasury by order made by statutory instrument.

Section 63

SCHEDULE 23 EMI options and entrepreneurs’ relief etc

15Entrepreneurs’ relief to apply to shares acquired under EMI option

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) 20Condition C is that—

(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) 25the company is either a trading company or the
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
30of the trading group.

(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
35period of 1 year ending with the cessation date,

(c) the conditions in paragraph (c) of subsection (7A) are met
throughout that period of 1 year, and

(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
5subsection (7D) applies, or

(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) 10acquires them as a result of the exercise of a qualifying option
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) 15Subsection (7D) does not apply to shares acquired as a result of the
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
20532(1)(b) of ITEPA 2003.

(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
25(whether by virtue of subsection (7D) or this subsection), and

(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) 30Subsection (7F)(c)(ii) applies only if—

(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
35(see paragraph 9 of Schedule 5 to ITEPA 2003) and the
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
40which are relevant EMI shares by virtue of subsection (7F), means the
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
45mentioned in section 127, in subsection (7A)(c) references to the
company are to be read as references to (if different)—

(a) the company whose shares are the original relevant EMI
shares, or

(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) 5if at the time in question the individual is holding
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
10subsection (7F), the question of whether the requirement of
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
15question was granted.

(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) 20the date on which the old option was granted, or

(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
25into account under subsection (7M), in subsection (7A)(c) references
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) 30ceases to be a trading company without continuing to be or
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
35EMI shares if—

(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) 40it is exercised within the period mentioned in section
532(1)(b) of ITEPA 2003, or