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Chapter 4 | |
Post-acquisition benefits from shares | |
Introduction | |
447 Application of this Chapter | |
(1) This Chapter applies where a person (“the employee”)— | 5 |
(a) acquires shares or an interest in shares in a company, and | |
(b) does so as a director or employee of that or another company. | |
(2) In this Chapter (unless the context indicates a different meaning)— | |
“the acquisition” means the acquisition of shares or an interest in shares | |
mentioned in subsection (1)(a); | 10 |
“the shares” means the shares mentioned there; | |
and “director” and “employee” have the extended meaning given by section | |
470(1). | |
(3) The company as a director or employee of which the employee acquires the | |
shares or the interest in them is “the employer company” for the purposes of | 15 |
this Chapter. | |
(4) For the purposes of this Chapter a person (“E”) acquires shares or an interest in | |
shares “as a director or employee” of a company if E acquires the shares or | |
interest in pursuance of— | |
(a) a right conferred on, or an opportunity offered to, E by reason of E’s | 20 |
office as a director of, or E’s employment by, the company; or | |
(b) a right assigned to E after having been conferred on some other person | |
by reason of E’s office as a director of, or E’s employment by, the | |
company. | |
(5) In addition, if a person (“A”) acquires shares or an interest in shares in a | 25 |
company in pursuance of a right conferred on, or opportunity offered to, A as | |
a person connected with a director or employee of that or another company | |
(“the company”), the director or employee is to be treated for the purposes of | |
this Chapter— | |
(a) as acquiring the shares or interest “as a director or employee” of the | 30 |
company, and | |
(b) as holding any beneficial interest in the shares for the time being held | |
by A; | |
and subsections (1) to (3) apply accordingly. | |
(6) Section 463 provides for a person to be treated as continuing to have a | 35 |
beneficial interest in shares until there is a qualifying disposal for the purposes | |
of that section. | |
448 Cases where this Chapter does not apply | |
(1) This Chapter does not apply where a person has acquired shares or an interest | |
in shares as a director or employee of a company if the earnings from the office | 40 |
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 | |
employee resident and ordinarily resident in the UK). | |
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(2) This Chapter does not apply where a person has acquired shares or an interest | |
in shares under the terms of an offer to the public. | |
(3) In a case within section 544(1) (exemption for priority share allocations where | |
offer to employees separate from public offer), any acquisition made under the | |
terms of either the public offer or the employee offer within the meaning of that | 5 |
section is to be treated for the purposes of this Chapter as made under the | |
terms of an offer to the public. | |
(4) Subsection (3) applies whether or not there is any benefit within section 544(2) | |
(benefit derived from entitlement to priority allocation exempt from income | |
tax). | 10 |
Tax charge where restrictions or rights varied | |
449 Charge on occurrence of chargeable event | |
(1) This section applies if a chargeable event occurs in relation to the shares at a | |
time when the employee has not ceased to have a beneficial interest in them. | |
(2) The taxable amount determined under section 451 counts as employment | 15 |
income of the employee for the relevant tax year. | |
(3) The “relevant tax year” is the tax year in which the chargeable event occurs. | |
(4) Section 450 explains what are chargeable events for the purposes of this | |
section. | |
(5) This section is subject to— | 20 |
section 452 (cases outside charge under this section), | |
section 494 (approved SIPs: no charge on removal of restrictions), | |
section 520 (approved SAYE option schemes: no charge in respect of post- | |
acquisition benefits), and | |
section 525 (approved CSOP schemes: no charge in respect of post- | 25 |
acquisition benefits). | |
450 Chargeable events | |
(1) This section applies for the purposes of section 449 (charge on occurrence of | |
chargeable event). | |
(2) Unless excluded by subsection (4), any of the events mentioned in subsection | 30 |
(3) is a “chargeable event” in relation to shares in a company if it increases the | |
value of the shares or would do so but for the occurrence of some other event. | |
(3) The events are— | |
(a) the removal or variation of a restriction applying to the shares, | |
(b) the creation or variation of a right relating to the shares, | 35 |
(c) the imposition of a restriction applying to other shares in the company, | |
(d) the variation of a restriction applying to other shares in the company, | |
and | |
(e) the removal or variation of a right relating to other shares in the | |
company. | 40 |
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(4) An event within subsection (3) is not a “chargeable event” if the restriction or | |
right applies to all shares of the class concerned and any of the following | |
conditions is met at the time of the event— | |
(a) the company is employee-controlled because of holdings of shares of | |
the relevant class; | 5 |
(b) the majority of the company’s shares of the relevant class are held by | |
outside shareholders; | |
(c) the company is a 51% subsidiary with shares of a single class. | |
(5) “The relevant class” means the class of shares to which the shares belong. | |
(6) References in this section— | 10 |
(a) to restrictions to which shares are subject, or | |
(b) to rights relating to shares, | |
are references to such restrictions imposed or rights conferred by contract, | |
arrangement or in any other way. | |
451 Amount of charge | 15 |
(1) The taxable amount for the purposes of section 449 (charge on occurrence of | |
chargeable event) is— | |
(a) the amount by which the value of the shares is increased by the | |
chargeable event, or | |
(b) if that amount is affected by the occurrence of some other event, the | 20 |
amount by which that value would have been increased but for that | |
other event. | |
(2) If the interest of the employee is less than full beneficial ownership, the taxable | |
amount is an appropriate proportion of the amount mentioned in subsection | |
(1)(a) or (b). | 25 |
452 Cases outside charge under section 449 | |
(1) Section 449 (charge on occurrence of chargeable event) does not apply in the | |
following cases. | |
(2) Section 449 does not apply if, by virtue of section 427 (charge on interest | |
ceasing to be only conditional, etc.), an amount counts as employment income | 30 |
of the employee in respect of the chargeable event. | |
(3) Section 449 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 | |
chargeable event occurs, been a director or employee of— | |
(a) the employer company; | 35 |
(b) if different, the company whose shares they are; or | |
(c) an associated company of a company within paragraph (a) or (b). | |
(4) Section 449 does not apply in relation to shares in a company which— | |
(a) was a dependent subsidiary at the time of the acquisition, or | |
(b) is a dependent subsidiary immediately before the time of the | 40 |
chargeable event. | |
(5) But in such a case section 453 (charge on increase in value of shares in | |
dependent subsidiaries) may apply. | |
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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 | 5 |
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 | 10 |
(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— | 15 |
section 456 (cases outside charge under this section), | |
section 495 (approved SIPs: no charge on increase in value of shares), | |
section 520 (approved SAYE option schemes: no charge in respect of post- | |
acquisition benefits), and | |
section 525 (approved CSOP schemes: no charge in respect of post- | 20 |
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 | 25 |
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 | 30 |
(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 | 35 |
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, | 40 |
(b) the time when the employee ceases to have a beneficial interest in the | |
shares, and | |
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(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]]]]](missing.gif) | 5 |
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)— | 10 |
(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 | 15 |
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 | 20 |
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 | 25 |
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. | 30 |
(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) | 35 |
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 | 40 |
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 | |
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(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 | 5 |
(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. | 10 |
(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; | 15 |
(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. | 20 |
(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 | 25 |
(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 | 30 |
(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— | 35 |
(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— | 40 |
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(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 | 5 |
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 | 10 |
(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 | 15 |
(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 | 20 |
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 | 25 |
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 | 30 |
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, | 35 |
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 | 40 |
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. | |
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