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Income Tax (Earnings and Pensions) Bill


Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 4 — Post-acquisition benefits from shares

    227

 

Tax charge on increase in value of shares in dependent subsidiaries

 453   Charge on increase in value of shares of dependent subsidiary

     (1)    This section applies if the shares are shares in a company —

           (a)           which was a dependent subsidiary at the time of the acquisition, or

           (b)           which was not then a dependent subsidiary but becomes one before the

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employee ceases to have a beneficial interest in the shares,

            and (in either case) there is a chargeable increase in the value of the shares.

     (2)    The taxable amount determined under section 455 counts as employment

income of the employee for the relevant tax year.

     (3)    The “relevant tax year” is the tax year which includes the appropriate time

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(within the meaning of section 454(2) or (4)) by reference to which the

chargeable increase is determined under that provision.

     (4)    Section 454 explains what are chargeable increases for the purposes of this

section.

     (5)    This section is subject to—

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                    section 456 (cases outside charge under this section),

                    section 495 (approved SIP: no charge on increase in value of shares),

                    section 520 (approved SAYE option scheme: no charge in respect of post-

acquisition benefits), and

                    section 525 (approved CSOP scheme: no charge in respect of post-

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acquisition benefits).

 454   Chargeable increases

     (1)    This section applies for the purposes of section 453 (charge on increase in value

of shares of dependent subsidiary).

     (2)    In a case within section 453(1)(a) (dependent subsidiary at time of the

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acquisition) there is a “chargeable increase” in the value of the shares if the

value of the shares at the appropriate time exceeds their value at the time of the

acquisition.

     (3)    In subsection (2) “the appropriate time” means whichever is the earlier of—

           (a)           the end of the period of 7 years after the date of the acquisition, and

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           (b)           the time when the employee ceases to have a beneficial interest in the

shares.

     (4)    In a case within section 453(1)(b) (company becoming dependent subsidiary

after time of acquisition) there is a “chargeable increase” in the value of the

shares if the value of the shares at the appropriate time exceeds their value at

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the time when the company becomes a dependent subsidiary.

     (5)    In subsection (4) “the appropriate time” means whichever is the earlier or

earliest of—

           (a)           the end of the period of 7 years after the date on which the company

becomes a dependent subsidiary,

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           (b)           the time when the employee ceases to have a beneficial interest in the

shares, and

 

 

Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 4 — Post-acquisition benefits from shares

    228

 

           (c)           if the company ceases to be a dependent subsidiary, the time when it

does so.

 455   Amount of charge

     (1)    The taxable amount for the purposes of section 453 (charge on increase in value

of shares in dependent subsidiary) is—equation: plus[char[I],minus[times[char[D],char[A]]]]

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            where—

                    I is the amount of the chargeable increase in value of the shares, and

                    DA is the total of any deductible amounts.

            This is subject to subsections (3) and (4).

     (2)    For the purposes of subsection (1)—

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           (a)           if the consideration for the acquisition is subsequently increased in

accordance with the terms on which the acquisition was made, the

amount of that increase is a “deductible amount”;

           (b)           if, before the time by reference to which the chargeable increase is

determined, an event occurs in respect of the shares by virtue of which

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an amount counts as employment income of the employee under—

                  (i)                 Chapter 2 of this Part (conditional interests in shares), or

                  (ii)                Chapter 3 of this Part (convertible shares),

                         that amount is a “deductible amount”.

     (3)    If, in accordance with the terms on which the acquisition was made, the

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employee subsequently ceases to have a beneficial interest in the shares as the

result of a disposal made for a consideration which is less than the value of the

shares or the employee’s interest in them at the time of the disposal, the

amount “I” in subsection (1) is—

           (a)           if the disposal is within section 454(3)(b), an amount equal to the excess

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of that consideration over the value of the shares or interest at the time

of the acquisition, or

           (b)           if the disposal is within section 454(5)(b), an amount equal to the excess of that

consideration over the value of the shares or interest at the time of the company

becoming a dependent subsidiary.

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     (4)    If the interest of the employee is less than full beneficial ownership, the amount

“I” in subsection (1) is an appropriate proportion of the amount that it would

be apart from this subsection.

 456   Cases outside charge under section 453

     (1)    Section 453 (charge on increase in value of shares of dependent subsidiary)

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does not apply in the following cases.

     (2)    Section 453 does not apply if—

           (a)           the chargeable increase arises in relation to a disposal of the employee’s

beneficial interest in the shares, and

           (b)           by virtue of section 427 (charge on interest ceasing to be only

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conditional, etc.), an amount counts as employment income of the

employee in respect of the disposal.

     (3)    Section 453 does not apply in relation to shares in a company within subsection

(1)(b) of that section (company becoming a dependent subsidiary after

 

 

Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 4 — Post-acquisition benefits from shares

    229

 

     (3)    acquisition) if the employee has not, at any time in the period of 7 years ending

with the date on which the company became a dependent subsidiary, been a

director or employee of—

           (a)           the employer company,

           (b)           if different, the company whose shares they are, or

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           (c)           an associated company of a company within paragraph (a) or (b).

Tax charge on other benefits from shares

 457   Charge on other chargeable benefits from shares

     (1)    This section applies if a person within subsection (2) receives a chargeable

benefit by virtue of that person’s ownership of or interest in the shares.

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     (2)    The persons within this subsection are—

           (a)           the employee,

           (b)           the person referred to as “A” in section 447(5) (shares acquired by

connected person), in a case where that provision applies in relation to

the shares;

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           (c)           any other person, in a case where the employee is for the time being treated as

continuing to have a beneficial interest in the shares by virtue of section 463

(disposals of shares to connected persons etc. ignored).

     (3)    The taxable amount determined under section 459 counts as employment

income of the employee for the relevant tax year.

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     (4)    The “relevant tax year” is the tax year in which the benefit is received.

     (5)    Section 458 explains what are chargeable benefits for the purposes of this

section.

     (6)    This section—

           (a)           does not apply if the benefit is otherwise chargeable to income tax, and

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           (b)           is subject to section 460 (cases outside charge under this section).

 458   Chargeable benefits

     (1)    This section applies for the purposes of section 457 (charge on other chargeable

benefits from shares).

     (2)    A benefit received by a person is a “chargeable benefit” if subsection (3), (4) or

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(5) applies to the benefit.

     (3)    This subsection applies to a benefit if, at the time when it becomes available, it

is available to less than 90% of the persons who then hold shares of the same

class as the shares.

     (4)    This subsection applies to a benefit if, at the time when it is received—

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           (a)           the company is a dependent subsidiary, and

           (b)           its shares are of a single class.

     (5)    This subsection applies to a benefit if, at the time when it is received, none of

the conditions in subsection (6) is met.

     (6)    The conditions are—

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Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 4 — Post-acquisition benefits from shares

    230

 

           (a)           that the majority of the company’s shares in respect of which the benefit

is received are held by outside shareholders;

           (b)           that the company is employee-controlled by virtue of holdings of

shares of the same class as the shares;

           (c)           that, in a case where the company is a 51% subsidiary which is not a

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dependent subsidiary, the majority of its shares in respect of which the

benefit is received are held otherwise than by or for the benefit of—

                  (i)                 directors or employees of the company,

                  (ii)                a company which is an associated company of the company but

is not its parent company, or

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                  (iii)               directors or employees of a company which is an associated

company of the company.

     (7)    For the purposes of this section—

           (a)           “the company”, in relation to the shares (see section 457(1)), means the

company whose shares they are; and

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           (b)           a company (“P”) is the “parent company” of another company (“S”) if S

is a 51% subsidiary of P.

 459   Amount of charge

The taxable amount for the purposes of section 457 (charge on other chargeable

benefits) is the amount which the person receiving the benefit might

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reasonably expect to obtain from a sale in the open market.

 460   Cases outside charge under section 457

Section 457 (charge on other chargeable benefits) does not apply in relation to

shares in a company if the employee has not, at any time in the period of 7 years

ending with the date on which the benefit is received, been a director or

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employee of—

           (a)           the employer company,

           (b)           if different, the company whose shares they are, or

           (c)           an associated company of a company within paragraph (a) or (b).

Supplementary provisions

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 461   Related acquisitions of additional shares

     (1)    This section applies if, by virtue of holding the shares (“the original shares”) or

the interest in them, the employee acquires—

           (a)           additional shares (“the additional shares”), or

           (b)           an interest in additional shares,

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            whether for consideration or not.

     (2)    The additional shares are, or the interest in them is, to be treated—

           (a)           for the purposes of this Chapter, as acquired by the employee as a

director or employee of the employer company, and

           (b)           for the purposes only of sections 449 to 456 (charge on occurrence of

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chargeable event or increase in value of shares in dependent

subsidiaries), as so acquired at the same time as the original shares or

the interest in them.

 

 

Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 4 — Post-acquisition benefits from shares

    231

 

     (3)    For the purposes of sections 453 to 456 (charge on increase in value of shares in

dependent subsidiaries)—

           (a)           the additional shares and the original shares are to be treated as one

holding of shares,

           (b)           the value of the shares comprised in that holding at any time, and of

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interests in them, is to be determined accordingly (the value of the

original shares at the time of the acquisition being attributed

proportionately to all the shares in the holding), and

           (c)           any consideration given for the acquisition of the additional shares, or

the interest in them, is to be treated as an increase in the consideration

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for the original acquisition for the purposes of section 455(2)(a)

(amounts that may be deducted in calculating the amount of the tax

charge).

 462   Company reorganisations etc.

     (1)    This section applies if—

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           (a)           on a person ceasing to have a beneficial interest in shares, that person

acquires other shares or an interest in other shares, and

           (b)           the circumstances are such that the shares in which the person ceases to

have a beneficial interest constitute “original shares” and the other

shares constitute a “new holding” for the purposes of sections 127 to

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130 of TCGA 1992 (reorganisations).

     (2)    Section 127 of TCGA 1992 (under which disposals on reorganisations are

disregarded and new holdings are treated as acquired as the original shares

were) applies for the purposes of this Chapter.

     (3)    Any consideration which—

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           (a)           the person gives or becomes liable to give for the new holding, and

           (b)           is not excluded by virtue of section 128(2) of TCGA 1992 from being

consideration for the purposes of section 128(1) of that Act,

            is to be treated for the purposes of this Chapter as an increase in the

consideration for the original acquisition for the purposes of section 455(2)(a)

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above (amounts that may be deducted in calculating the amount of the tax

charge).

     (4)    If any consideration of the kind mentioned in section 128(3) of TCGA 1992 is

received for the disposal of the original shares—

           (a)           it is to be apportioned among the shares comprising the new holding,

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and

           (b)           the amount which, apart from this subsection, would at a subsequent

time be the value of any of those shares is to be treated as being

increased by the amount of the consideration apportioned to them.

 463   Disposals of shares to connected persons etc. ignored

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     (1)    The employee is to be treated as continuing to have a beneficial interest in the shares for

the purposes of this Chapter until there is a qualifying disposal of the shares or (as the

case may be) of the interest in them.

     (2)    A disposal is a “qualifying disposal” if

 

 

Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 4 — Post-acquisition benefits from shares

    232

 

           (a)           it is a disposal by a bargain at arm’s length with a person who is not connected

with the person making the disposal (whether that is the employee or some

other person), or

           (b)           it is a disposal, in accordance with the terms on which the acquisition was

made, to the company whose shares they are.

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 464   Application to interests in shares

Where this Chapter applies to an interest in shares, an increase or reduction of

the interest is to be treated as the acquisition or disposal of a separate interest

proportionate to the increase or reduction.

 465   Duty to notify acquisitions of shares or interests in shares

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     (1)    This section applies where a person acquires shares or an interest in shares as

mentioned in section 447(1).

     (2)    The cases where it applies accordingly include the case where an employee is

treated as acquiring shares, or an interest in them, by virtue of section 461 or

462.

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     (3)    Each of the following—

           (a)           the employer company, and

           (b)           if different, the company whose shares they are,

            must provide the Inland Revenue with particulars in writing of the acquisition.

     (4)    The particulars must be provided before 7th July in the tax year following that

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in which the acquisition is made.

     (5)    However, no particulars of any acquisition need be provided by a company

under this section if the company has already given particulars of it under—

                    section 432 (conditional interest in shares), or

                    section 486 (shares allotted or transferred on exercise of share option).

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 466   Duty to notify chargeable events and chargeable benefits

     (1)    This section applies where—

           (a)           a chargeable event (within the meaning given by section 450) occurs in

relation to shares in a company, or

           (b)           a person receives a chargeable benefit (within the meaning given by

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section 458) in respect of shares, or an interest in shares, in a company.

     (2)    Each of the following—

           (a)           the employer company, and

           (b)           if different, the company whose shares they are,

            must provide the Inland Revenue with particulars in writing of the chargeable

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event or chargeable benefit and of the shares concerned.

     (3)    The particulars must be provided within 92 days after the date on which the

event occurs or the benefit is received.

 

 

 
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