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Interpretation | |
467 Meaning of “dependent subsidiary” | |
(1) For the purposes of this Chapter a company which is a 51% subsidiary is a | |
“dependent subsidiary” throughout a period of account of the company unless | |
all of the following conditions are met— | 5 |
(a) the conditions relating to the company in subsections (2) and (3), | |
(b) the condition relating to a directors’ certificate in subsection (4), and | |
(c) the condition relating to an auditors’ report in subsection (5). | |
(2) The first condition relating to the company is that the whole or substantially | |
the whole of the company’s business during the period of account (taken as a | 10 |
whole) is carried on with persons who are not members of the same group as | |
the company. | |
(3) The second condition relating to the company is that during that period | |
either— | |
(a) there is no increase in the value of the company as a result of intra- | 15 |
group transactions, or | |
(b) any such increase in value does not exceed 5% of the value of the | |
company at the beginning of the period (or a proportionately greater or | |
smaller percentage in the case of a period which is longer or shorter | |
than a year). | 20 |
(4) The condition relating to a directors’ certificate is that the directors of the | |
principal company of the group give to the Inland Revenue, not later than 2 | |
years after the end of the period of account, a certificate that in their opinion | |
the conditions in subsections (2) and (3) are satisfied in relation to that period. | |
(5) The condition relating to an auditor’s report is that there is attached to that | 25 |
certificate a report addressed to those directors by the auditors of the | |
subsidiary and stating that the auditors— | |
(a) have enquired into the state of affairs of the company with particular | |
reference to the conditions in subsections (2) and (3), and | |
(b) are not aware of anything to indicate that the opinion expressed by the | 30 |
directors in their certificate is unreasonable in all the circumstances. | |
(6) For the purposes of subsection (2) business carried on with a 51% subsidiary of | |
the company is to be treated as carried on with a person who is not a member | |
of the same group as the company. | |
(7) But subsection (6) does not apply if the whole or substantially the whole of the | 35 |
business of that or any other 51% subsidiary of the company during the period | |
of account (taken as a whole) is carried on with members of the group other | |
than the company and its 51% subsidiaries. | |
(8) In this section— | |
“group” means a principal company and all its 51% subsidiaries, | 40 |
“intra-group transactions” means transactions between companies which | |
are members of the same group on terms which are not such as might | |
be expected to be agreed between persons acting at arm’s length (other | |
than any payment for group relief within the meaning given in section | |
402(6) of ICTA), | 45 |
“period of account”, in relation to a company, means the period for which | |
it makes up its accounts, and | |
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“principal company” means a company of which another company is a | |
51% subsidiary and which is not itself a 51% subsidiary of another | |
company. | |
468 Meaning of “employee-controlled” | |
For the purposes of this Chapter a company is “employee-controlled” by virtue | 5 |
of shares of a class if— | |
(a) the majority of the company’s shares of that class (other than any held | |
by or for the benefit of an associated company) are held by or for the | |
benefit of employees or directors of the company or a company | |
controlled by the company, and | 10 |
(b) those directors and employees are together able as holders of the shares | |
to control the company. | |
469 Shares “held by outside shareholders” | |
For the purposes of this Chapter a company’s shares are “held by outside | |
shareholders” if the shares are held otherwise than by or for the benefit of— | 15 |
(a) directors or employees of the company, | |
(b) an associated company of the company, or | |
(c) directors or employees of any such associated company. | |
470 Minor definitions | |
(1) In this Chapter— | 20 |
“associated company” has the same meaning as, by virtue of section 416 | |
of ICTA, it has for the purposes of Part 11 of ICTA; | |
“director”, except in sections 452(3), 456, 460 and 468 (cases excluded from | |
charges and definition of “employee-controlled”), includes a person | |
who is to be or has been a director; | 25 |
“employee”, except in those provisions, includes a person who is to be or | |
has been an employee; | |
“interest in shares” includes an interest in the proceeds of sale of part of | |
the shares, but not a right to acquire shares; | |
“shares” includes stock and any securities as defined in section 254(1) of | 30 |
ICTA; | |
“value”, in relation to shares, means the amount which the person holding | |
the shares might reasonably expect to obtain from a sale in the open | |
market. | |
(2) In this Chapter— | 35 |
“the acquisition,” | |
“the employee”, | |
“the employer company”, and | |
“the shares”, | |
have the meaning indicated in section 447(1) to (3). | 40 |
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Chapter 5 | |
Share options | |
Introduction | |
471 Share options to which this Chapter applies | |
(1) This Chapter applies to a share option granted by reason of a person’s office or | 5 |
employment as a director or employee of a company. | |
(2) The person may be a director or employee of the company whose shares are the | |
subject of the share option, or of another company. | |
(3) The share option may be granted to the director or employee or to another | |
person. | 10 |
(4) In this Chapter, a “share option” means a right to acquire shares in a company | |
and (unless the context indicates a different meaning)— | |
“the employee”, in relation to a share option, means the person mentioned | |
in subsection (1); and | |
“the share option” means the right to acquire shares mentioned there, | 15 |
and “director” and “employee” have the extended meaning given by section | |
487(1). | |
472 Introduction to taxation of share options | |
(1) The starting-point is that liability to tax may arise by virtue of Chapter 1 of Part | |
3 (earnings) or Chapter 10 of that Part (taxable benefits: residual liability to | 20 |
charge) when the share option is received, but not when it is exercised. | |
(2) But section 474 (no charge in respect of receipt of shorter-term option) contains | |
an exemption from this liability. | |
(3) Liability to tax may arise when the share option is exercised by virtue of— | |
(a) Chapter 8 of Part 3 (taxable benefits: notional loans in respect of | 25 |
acquisitions of shares), or | |
(b) section 476 or 477 (charge on exercise etc. of option). | |
(4) Liability to tax may also arise when the share option is assigned or released by | |
virtue of section 476 or 477. | |
(5) There are special rules relating to share options received under— | 30 |
(a) approved SAYE option schemes, (see Chapter 7 of this Part), | |
(b) approved CSOP schemes, (see Chapter 8 of this Part), or | |
(c) enterprise management incentives (see Chapter 9 of this Part). | |
473 Share options to which this Chapter does not apply | |
(1) This Chapter (apart from sections 472 and 485) does not apply to a share option | 35 |
granted by reason of a person’s office or employment if the earnings from the | |
office or employment 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 | |
employee resident and ordinarily resident in the UK). | |
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(2) This Chapter (apart from sections 472 and 485) does not apply to a share option | |
so granted after the person has ceased to hold the office or employment, if it | |
would not apply in the event of the option being granted in the last tax year in | |
which the office or employment was held. | |
Receipt of share option | 5 |
474 No charge in respect of receipt of shorter-term option | |
(1) Subsection (2) applies if the share option cannot be exercised after the tenth | |
anniversary of the date on which it was obtained. | |
(2) No liability to income tax arises in respect of the receipt of the share option, | |
except as provided by section 526 (approved CSOP: charge where option | 10 |
granted at a discount). | |
475 Value of longer-term option for purposes of liability to tax in respect of | |
receipt | |
(1) This section applies if the share option can be exercised after the tenth | |
anniversary of the date on which it was obtained. | 15 |
(2) For the purposes of any liability to tax by virtue of Chapter 1 of Part 3 | |
(earnings) in respect of the receipt of the share option, the value of the option | |
is taken to be—![equation: plus[times[char[M],char[V]],minus[char[C]]]](missing.gif) | |
where— | |
MV is the higher of— | 20 |
(a) the market value at the time the share option is obtained of the shares | |
that are the subject of the share option, and | |
(b) the market value at that time of any shares for which those shares may | |
be exchanged, and | |
C is— | 25 |
(a) the amount or value of the consideration for which the shares | |
that are the subject of the share option may be acquired, or | |
(b) if that consideration is variable, the least amount or value of the | |
consideration for which they may be acquired. | |
(3) In this section “market value” has the same meaning as it has for the purposes | 30 |
of TCGA 1992 by virtue of Part 8 of that Act. | |
Tax charge on exercise, assignment or release of share option | |
476 Charge on exercise, assignment or release of option by employee | |
(1) This section applies if the employee realises a gain by exercising, assigning or | |
releasing the share option. | 35 |
(2) The taxable amount determined under section 478 counts as employment | |
income of the employee for the relevant tax year. | |
(3) The “relevant tax year” is the tax year in which the option is exercised, assigned | |
or released. | |
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(4) Subsection (2) is subject to— | |
section 519 (approved SAYE option scheme: no charge in respect of | |
exercise of option), | |
section 524 (approved CSOP scheme: no charge in respect of exercise of | |
option), and | 5 |
section 530 (EMIs: no charge on exercise of option to acquire shares at | |
market value). | |
477 Charge on employee where option exercised, assigned or released by another | |
person | |
(1) This section applies if a person other than the employee realises a gain by | 10 |
exercising, assigning or releasing the share option and any of the following is | |
the case— | |
(a) the option was granted to that other person, or | |
(b) the other person acquired the share option otherwise than by or under | |
an assignment made by way of a bargain at arm’s length, or | 15 |
(c) the employee and the other person are connected persons at the time | |
when the gain is realised. | |
(2) The taxable amount determined under section 478 counts as employment | |
income of the employee for the relevant tax year. | |
(3) The “relevant tax year” is the tax year in which the option is exercised, assigned | 20 |
or released. | |
(4) This section does not apply if the share option is exercised, assigned or released | |
after the death of the person to whom it was granted by— | |
(a) that person’s personal representatives, or | |
(b) the person on whom the option devolved under a testamentary | 25 |
disposition or on an intestacy or partial intestacy, whether beneficially | |
or as trustee. | |
(5) This section does not apply by virtue of subsection (1)(b) or (c) if the employee | |
was divested of the share option by operation of law. | |
(6) In that case the person who realises the gain is chargeable to tax under Case VI | 30 |
of Schedule D on an amount equal to the amount of the gain in a case within | |
subsection (1)(b) or (c) (see section 479 or 480). | |
478 Amount of charges | |
(1) The taxable amount for the purposes of sections 476 and 477 (charges on | |
exercise, assignment or release of option) is—![equation: plus[times[char[A],char[G]],minus[times[char[D],char[A]]]]](missing.gif) | 35 |
where— | |
AG is the amount of the gain (see section 479 or 480), and | |
DA is the total of any deductible amounts. | |
(2) For the purposes of subsection (1) each of the following is a “deductible | |
amount”— | 40 |
(a) subject to subsection (3), any amount that constitutes earnings from the | |
employee’s employment under Chapter 1 of Part 3 (earnings) in respect | |
of the receipt of the share option, | |
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(b) subject to subsection (3), any amount that is treated as earnings from | |
the employee’s employment under Chapter 10 of Part 3 (taxable | |
benefits: residual liability to charge) in respect of the receipt of the share | |
option, and | |
(c) any amount that is a deductible amount by virtue of section 481 or 482 | 5 |
(deductible amounts in respect of secondary Class 1 contributions or | |
special contribution met by the employee). | |
(3) If— | |
(a) the taxable amount is being determined for the purposes of section 477, | |
and | 10 |
(b) section 476 or that section has already applied to the share option by | |
virtue of an earlier event, | |
so much of the amounts in subsection (2)(a) or (b) as was deducted in | |
calculating the taxable amount on that occasion is not a deductible amount. | |
479 Amount of gain realised by exercising option | 15 |
(1) The amount of the gain realised by exercising the share option is—![equation: plus[times[char[M],char[V]],minus[times[char[D],char[C]]]]](missing.gif) | |
where— | |
MV is the amount that a person might reasonably expect to obtain from a | |
sale of the shares acquired in the open market at the time the option is | |
exercised, and | 20 |
DC is the total of any deductible costs. | |
(2) For the purposes of subsection (1) each of the following is a “deductible cost”— | |
(a) subject to subsection (3), the amount or value of any consideration | |
given for the grant of the share option; | |
(b) the amount or value of any consideration given for the shares acquired; | 25 |
(c) in a case within section 477(1)(b) or (c), the amount of any gain realised | |
by a previous holder on an assignment of the option; and | |
(d) if an amount counts as employment income of the employee under | |
section 526 (approved CSOP scheme: charge where option granted at a | |
discount) in respect of the share option, so much of that amount as is | 30 |
attributable to the shares in question. | |
(3) If section 476 or 477 has already applied to the share option by virtue of an | |
earlier event, so much of the consideration given for the grant of the share | |
option as was deducted in calculating the amount of the gain on that occasion | |
is not a deductible cost. | 35 |
(4) The amount of the gain is calculated in accordance with section 531 (EMIs: | |
limitation of charge on exercise of option to acquire shares below market value) | |
or 532 (EMIs: modified tax consequences following disqualifying events) if— | |
(a) it is being calculated for the purposes of section 476 (charge on exercise | |
etc. of option by employee), and | 40 |
(b) section 531 or 532, as the case may be, applies. | |
480 Amount of gain realised by assigning or releasing option | |
(1) The amount of the gain realised by assigning or releasing the share option is—![equation: plus[char[C],minus[times[char[D],char[C]]]]](missing.gif) | |
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where— | |
C is the amount or value of the consideration for the assignment or | |
release, and | |
DC is the total of any deductible costs. | |
(2) For the purposes of subsection (1) each of the following is a “deductible cost”— | 5 |
(a) subject to subsection (3), the amount or value of any consideration | |
given for the grant of the share option; | |
(b) in a case within section 477(1)(b) or (c), the amount of any gain realised | |
by a previous holder on an assignment of the share option; and | |
(c) if an amount counts as employment income of the employee under | 10 |
section 526 (approved CSOP scheme: charge where option granted at a | |
discount) in respect of the share option, so much of that amount as is | |
attributable to the shares in question. | |
(3) If section 476 or 477 has already applied to the share option by virtue of an | |
earlier event, so much of the consideration given for the grant of the share | 15 |
option as was deducted in calculating the amount of the gain on that occasion | |
is not a deductible cost. | |
481 Deductible amount in respect of secondary Class 1 contributions met by | |
employee | |
(1) The amount calculated under subsection (2) is a deductible amount for the | 20 |
purposes of section 478(1) if— | |
(a) an agreement having effect under paragraph 3A of Schedule 1 to the | |
Contributions and Benefits Act has been entered into allowing the | |
secondary contributor to recover from the employee the whole or part | |
of any secondary Class 1 contributions in respect of the gain, or | 25 |
(b) an election having effect under paragraph 3B of Schedule 1 to that Act | |
is in force which has the effect of transferring to the employee the whole | |
or part of the liability to pay secondary Class 1 contributions in respect | |
of the gain. | |
(2) The amount is the sum of— | 30 |
(a) any amount that under the agreement referred to in subsection (1)(a) is | |
recovered in respect of the gain by the secondary contributor before 5th | |
June in the tax year following that in which the exercise, assignment or | |
release of the share option occurred, and | |
(b) the amount of any liability in respect of the gain that, by virtue of the | 35 |
election referred to in subsection (1)(b), has become the employee’s | |
liability. | |
(3) If notice of withdrawal of approval of the election is given, the amount of any | |
liability in respect of the gain for the purposes of subsection (2)(b) is limited to | |
the amount of the liability met before 5th June in the tax year following that in | 40 |
which the exercise, assignment or release of the share option occurred. | |
(4) Subsection (1) does not apply in respect of a liability to pay Class 1 | |
contributions which is prevented from arising by virtue of section 2(1)(a) of the | |
Social Security Contributions (Share Options) Act 2001 (c. 20) (liability to pay | |
Class 1 contributions in respect of gain replaced by liability to pay special | 45 |
contribution). | |
(5) In this section— | |
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