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423 Interests in shares acquired “as a director or employee” | |
(1) For the purposes of this Chapter a person (“E”) acquires an interest in shares | |
“as a director or employee” of a company if E acquires the interest in pursuance | |
of— | |
(a) a right conferred on, or opportunity offered to, E by reason of E’s office | 5 |
or employment as a director or employee of the company; | |
(b) a right or opportunity assigned to E, having been conferred on or | |
offered to some other person by reason of E’s office or employment as | |
a director or employee of the company; or | |
(c) an assignment, the interest having been acquired by some other person | 10 |
by reason of E’s office or employment as a director or employee of the | |
company. | |
(2) The references in subsection (1) to a right or opportunity conferred or offered | |
by reason of E’s office or employment include— | |
(a) one so conferred or offered after E has ceased to hold the office or | 15 |
employment, and | |
(b) one that arises from the fact that shares— | |
(i) which E acquired as a director or employee (or is treated as so | |
acquiring by virtue of this paragraph), or | |
(ii) in which E so acquired an interest, | 20 |
were convertible shares. | |
(3) A person who— | |
(a) has acquired an interest in shares which is only conditional, convertible | |
shares or an interest in convertible shares, | |
(b) acquired that interest or those shares as a director or employee of a | 25 |
company, or is treated by virtue of this subsection as having done so, | |
and | |
(c) as a result of any two or more transactions— | |
(i) ceases to be entitled to that interest or those shares, and | |
(ii) becomes entitled to another interest in shares which is only | 30 |
conditional or to any convertible shares or to an interest in | |
convertible shares, | |
is to be treated for the purposes of this Chapter as if the interest or shares | |
mentioned in paragraph (c)(ii) were also acquired as a director or employee of | |
the company. | 35 |
(4) Subsection (3) also applies where the interest or shares mentioned in | |
subsection (3)(c)(ii) were acquired by a person connected with the first- | |
mentioned person. | |
(5) Nothing in subsection (3) or (4) affects the rights or opportunities included by | |
virtue of subsection (2)(b). | 40 |
(6) In this section “convertible shares” has the same meaning as in Chapter 3 of this | |
Part (convertible shares) (see section 435(2) and the definition of shares in | |
section 446(1)). | |
424 Meaning of interest being “only conditional” | |
(1) For the purposes of this Chapter an interest in shares is “only conditional” for | 45 |
so long as the terms on which the person is entitled to it— | |
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(a) provide that if certain circumstances arise, or do not arise, there will be | |
a transfer, reversion or forfeiture as a result of which that person will | |
cease to be entitled to any beneficial interest in the shares, and | |
(b) are not such that, on the transfer, reversion or forfeiture, that person | |
will be entitled to receive in respect of the interest an amount that is | 5 |
equal to or more than its market value at that time. | |
(2) But a person is not to be regarded as having an interest in shares which is only | |
conditional by reason only that one or more of the following is the case— | |
(a) the shares are unpaid or partly paid and may be forfeited for non- | |
payment of calls, in a case where there is no restriction on the meeting | 10 |
of calls by that person; | |
(b) the articles of association of the company require the shares to be | |
offered for sale or transferred, if that person ceases to hold a relevant | |
office or employment; | |
(c) that person may be required to offer the shares for sale or transfer them | 15 |
on ceasing, as a result of misconduct, to hold a relevant office or | |
employment; | |
(d) in the case of an interest in a security, the security may be redeemed on | |
payment of any amount. | |
(3) In subsection (1)(a) the references, in relation to the terms of a person’s | 20 |
entitlement, to circumstances arising include references to— | |
(a) the expiry of a period specified in or determined under those terms, | |
(b) the death of that or any other person, and | |
(c) the exercise by any person of a power conferred on that person by or | |
under those terms. | 25 |
(4) For the purposes of subsection (1)(b) the market value of the interest is to be | |
determined as if there were no provision for transfer, reversion or forfeiture. | |
(5) In subsection (2)(b) “articles of association” includes, in the case of a company | |
incorporated under the law of a country outside the United Kingdom, any | |
equivalent document relating to the company. | 30 |
(6) The references in subsection (2)(b) and (c) to a person ceasing to hold a relevant | |
office or employment are to that person ceasing to be an officer or employee of | |
the company in question, or of one or more group companies or of any group | |
company. | |
(7) For the purposes of subsection (6)— | 35 |
(a) a company is a “group company” in relation to another company if they | |
are members of the same group, and | |
(b) companies are taken to be members of the same group if, and only if, | |
one is a 51% subsidiary of the other or both are 51% subsidiaries of a | |
third company. | 40 |
425 Cases where this Chapter does not apply | |
(1) This Chapter does not apply where a person acquires a beneficial interest in | |
shares as a director or employee of a company if the earnings from the office or | |
employment in question were not (or would not have been if there had been | |
any) general earnings to which section 15 or 21 applies (earnings for year when | 45 |
employee resident and ordinarily resident in the UK). | |
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(2) This Chapter does not apply by virtue of section 423(2)(a) (right or opportunity | |
conferred or offered after person has ceased to hold office or employment) if it | |
would not apply if the right or opportunity had been conferred or offered in | |
the last tax year in which the office or employment was held. | |
Tax exemption | 5 |
426 No charge in respect of acquisition of employee’s interest in certain | |
circumstances | |
(1) Subsection (2) applies if the terms on which the employee acquires the | |
employee’s interest are such that the interest will cease to be only conditional | |
within 5 years after its acquisition. | 10 |
(2) No liability to income tax arises in respect of the acquisition of the employee’s | |
interest, except as provided by— | |
(a) Chapter 8 of Part 3 (taxable benefits: notional loans in respect of | |
acquisitions of shares), or | |
(b) section 476 (charge on exercise of share option by employee). | 15 |
Tax charge | |
427 Charge on interest in shares ceasing to be only conditional or on disposal | |
(1) This section applies if— | |
(a) the shares cease, without the employee ceasing to have a beneficial | |
interest in them, to be shares in which the employee’s interest is only | 20 |
conditional, or | |
(b) in a case where the shares have not so ceased, the employee sells or | |
otherwise disposes of the employee’s interest or any other beneficial | |
interest in the shares. | |
(2) The taxable amount determined under section 428 counts as employment | 25 |
income of the employee for the relevant tax year. | |
(3) The “relevant tax year” is the tax year in which the shares cease to be shares in | |
which the employee’s interest is only conditional, or in which the sale or other | |
disposal takes place. | |
(4) Subsection (2) is subject to section 494 (approved SIP: no charge on removal of | 30 |
restrictions). | |
428 Amount of charge | |
(1) The taxable amount for the purposes of section 427 (charge on interest in shares | |
ceasing to be only conditional or on disposal) is—![equation: plus[times[char[M],char[V]],minus[times[char[D],char[A]]]]](missing.gif) | |
where— | 35 |
MV is the market value of the employee’s interest immediately after it | |
ceases to be only conditional or, as the case may be, at the time of the | |
sale or other disposal, and | |
DA is the total of any deductible amounts. | |
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(2) For the purposes of subsection (1) each of the following is a “deductible | |
amount”— | |
(a) the amount or value of any consideration given for the employee’s | |
interest; | |
(b) any amount that constitutes earnings from the employee’s | 5 |
employment under Chapter 1 of Part 3 (earnings) in respect of the | |
acquisition of the employee’s interest; | |
(c) any amount that is treated as earnings from the employee’s | |
employment under Chapter 8 of Part 3 (taxable benefits: notional loans | |
in respect of acquisitions of shares) in respect of the acquisition; and | 10 |
(d) if the employee’s interest was acquired by the exercise of a share | |
option, any amount that counts as employment income of the employee | |
under section 476 or 477 (charge on employee on exercise etc. of option) | |
in respect of the exercise. | |
(3) If, not later than the event referred to in section 427(1)(a) or (b) occurred in | 15 |
relation to the employee’s interest, a different event occurred in respect of the | |
shares by virtue of which an amount counts as employment income of the | |
employee under— | |
(a) section 449 (charge on occurrence of chargeable event), or | |
(b) section 453 (charge on increase in value of shares of dependent | 20 |
subsidiary), | |
that amount is a “deductible amount” for the purposes of subsection (1). | |
(4) The references in subsection (3) to an event include the expiry of a period. | |
(5) Section 541(2) (effects of the EMI code on other income tax charges) also | |
provides that an amount is to be regarded as a “deductible amount” for the | 25 |
purposes of subsection (1). | |
Supplementary provisions | |
429 Amount or value of consideration given for employee’s interest | |
(1) This section applies for the purposes of section 428 (amount of charge) in | |
determining the amount or value of the consideration given for the employee’s | 30 |
interest. | |
(2) Subject to the following provisions of this section, that consideration is any | |
given in respect of the acquisition of an interest in the shares by— | |
(a) the employee, or | |
(b) if section 423(1)(c) applies, the person by whom the interest in the | 35 |
shares was acquired. | |
(3) The amount or value of the consideration given by a person for an interest in | |
the shares includes the amount or value of any consideration given— | |
(a) for a right to acquire the shares, and | |
(b) for anything by virtue of which the employee’s interest in the shares | 40 |
ceases to be only conditional. | |
(4) If any consideration is given partly in respect of one thing and partly in respect | |
of another, the amount given in respect of the different things is to be | |
determined on a just and reasonable apportionment. | |
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(5) The consideration which for the purposes of this section is taken to be given | |
wholly or partly for anything does not include the performance of any duties | |
of, or in connection with, the office or employment by reference to which the | |
interest in the shares in question has been acquired by a person as a director or | |
employee of a company. | 5 |
(6) No amount is to be counted more than once in calculating the amount or value | |
of any consideration. | |
430 Amount or value of consideration given for right to acquire shares | |
(1) This section applies for the purposes of section 429(3)(a) in determining the | |
amount or value of any consideration given for a right to acquire shares. | 10 |
(2) Subsection (3) applies if the right to acquire shares (“the new option”) is the | |
whole or part of the consideration for the assignment or release of another right | |
to acquire shares (“the old option”). | |
(3) The amount or value of the consideration given for the new option is to be | |
treated as being the sum of— | 15 |
(a) the amount by which the amount or value of the consideration given | |
for the grant of the old option exceeds the amount or value of any | |
consideration for the assignment or release of the old option, apart from | |
the new option, and | |
(b) any valuable consideration given for the grant of the new option, apart | 20 |
from the old option. | |
(4) Two or more transactions are to be treated for the purposes of subsection (2) as | |
a single transaction by which a right to acquire shares is assigned for a | |
consideration which consists of or includes another right to acquire shares if— | |
(a) the transactions result in— | 25 |
(i) a person ceasing to hold a right to acquire shares, and | |
(ii) that person or a connected person coming to hold another right | |
to acquire shares, and | |
(b) one or more of the transactions is effected under arrangements to which | |
two or more persons who hold rights to acquire shares, in respect of | 30 |
which there may be a liability to tax under Chapter 5 of this Part (share | |
options), are parties. | |
(5) Subsection (4) applies regardless of the order in which the assignment and the | |
acquisition occur. | |
(6) In this section “release” includes agreeing to the restriction of the exercise of the | 35 |
right. | |
431 Application of this Chapter where employee dies | |
(1) If the employee dies holding the employee’s interest, this Chapter applies as if | |
the employee had disposed of the interest immediately before dying. | |
(2) The market value of the interest at the time of that disposal is to be determined | 40 |
for the purposes of section 428 (amount of charge) on the basis— | |
(a) that it is known that the disposal is being made immediately before the | |
employee’s death, and | |
(b) that any restriction on disposal is to be disregarded in so far as it is a | |
restriction terminating on the employee’s death. | 45 |
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