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securities an amount of at least their market value | |
(determined as if there were no provision for transfer, | |
reversion or forfeiture) at the time of the transfer, reversion or | |
forfeiture. | |
(3) This subsection applies to provision under which there is a | 5 |
restriction on— | |
(a) the freedom of the person by whom the employment-related | |
securities are held to dispose of the employment-related | |
securities or proceeds of their sale, | |
(b) the right of that person to retain the employment-related | 10 |
securities or proceeds of their sale, or | |
(c) any other right conferred by the employment-related | |
securities, | |
(not being provision to which subsection (2) applies). | |
(4) This subsection applies to provision under which the disposal or | 15 |
retention of the employment-related securities, or the exercise of a | |
right conferred by the employment-related securities, may result in | |
a disadvantage to— | |
(a) the person by whom the employment-related securities are | |
held, | 20 |
(b) the employee (if not the person by whom they are held), or | |
(c) any person connected with the person by whom they are held | |
or with the employee, | |
(not being provision to which subsection (2) or (3) applies). | |
424 Exceptions | 25 |
Employment-related securities are not restricted securities or a | |
restricted interest in securities by reason only that any one or more | |
of the following is the case— | |
(a) the employment-related securities (or the securities in | |
which they are an interest) are unpaid or partly paid | 30 |
shares which may be forfeited for non-payment of | |
calls and there is no restriction on the meeting of calls | |
by the person by whom they are held, | |
(b) that person may be required to offer for sale or | |
transfer the employment-related securities on the | 35 |
employee ceasing, as a result of misconduct, to be | |
employed by the employer or a person connected | |
with the employer, or | |
(c) the employment-related securities (or the securities in | |
which they are an interest) may be redeemed on | 40 |
payment of any amount. | |
Tax exemption on acquisition | |
425 No charge in respect of acquisition in certain cases | |
(1) Subsection (2) applies if the employment-related securities— | |
(a) are restricted securities, or a restricted interest in securities, | 45 |
by virtue of subsection (2) of section 423 (provision for | |
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transfer, reversion or forfeiture) at the time of the acquisition, | |
and | |
(b) will cease to be restricted securities, or a restricted interest in | |
securities, by virtue of that subsection within 5 years after the | |
acquisition (whether or not they may remain restricted | 5 |
securities or a restricted interest in securities by virtue of the | |
application of subsection (3) or (4) of that section). | |
(2) No liability to income tax arises in respect of the acquisition, except | |
as provided by— | |
(a) Chapter 3 of this Part (acquisition by conversion), | 10 |
(b) Chapter 3C of this Part (acquisition for less than market | |
value), or | |
(c) Chapter 5 of this Part (acquisition pursuant to securities | |
option). | |
(3) But the employer and the employee may elect that subsection (2) is | 15 |
not to apply to the employment-related securities. | |
(4) An election under subsection (3)— | |
(a) is to be made by agreement by the employer and the | |
employee, and | |
(b) is irrevocable. | 20 |
(5) Such an agreement— | |
(a) must be made in a form approved by the Board of Inland | |
Revenue, and | |
(b) may not be made more than 14 days after the acquisition. | |
Tax charge on post-acquisition chargeable events | 25 |
426 Charge on occurrence of chargeable event | |
(1) This section applies if a chargeable event occurs in relation to the | |
employment-related securities. | |
(2) The taxable amount determined under section 428 counts as | |
employment income of the employee for the relevant tax year. | 30 |
(3) The “relevant tax year” is the tax year in which the chargeable event | |
occurs. | |
(4) Section 427 explains what are chargeable events for the purposes of | |
this section. | |
(5) This section is subject to section 429 (case outside charge under this | 35 |
section). | |
427 Chargeable events | |
(1) This section applies for the purposes of section 426 (charge on | |
occurrence of chargeable event). | |
(2) Any of the events mentioned in subsection (3) is a “chargeable event” | 40 |
in relation to the employment-related securities. | |
(3) The events are— | |
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(a) the employment-related securities ceasing to be restricted | |
securities, or a restricted interest in securities, in | |
circumstances in which an associated person is entitled to a | |
beneficial interest in the employment-related securities both | |
before and after the event, | 5 |
(b) the variation of any restriction relating to the employment- | |
related securities in such circumstances (without the | |
employment-related securities ceasing to be restricted | |
securities or a restricted interest in securities), and | |
(c) the disposal for consideration of the employment-related | 10 |
securities, or any interest in them, by an associated person | |
otherwise than to another associated person (at a time when | |
they are still restricted securities or a restricted interest in | |
securities). | |
(4) For the purposes of this Chapter there is a variation of a restriction | 15 |
relating to the employment-related securities if any restriction in | |
relation to them is removed or varied. | |
428 Amount of charge | |
(1) The taxable amount for the purposes of section 426 (charge on | |
occurrence of chargeable event) is—
UMV × (IUP − PCP − OP) − CE
| 20 |
(2) UMV is what would be the market value of the employment-related | |
securities immediately after the chargeable event but for any | |
restrictions (unless subsection (3) applies). | |
(3) Where the chargeable event is one within section 427(3)(c) (disposal) | |
and the consideration given for the employment-related securities, | 25 |
or the interest in them that is disposed of, on the disposal is less than | |
what would be UMV under subsection (2), UMV is the amount of the | |
consideration given. | |
(4) IUP is—
IUMV − DA
IUMV
| |
where— | 30 |
IUMV is what would have been the market value of the | |
employment-related securities at the time of the acquisition | |
but for any restrictions, and | |
DA is the total of any deductible amounts. | |
(5) PCP is the aggregate of the result of the application of the formula—
IUP − PCP − OP
| 35 |
on each previous event (if any) occurring since the acquisition that | |
was a chargeable event for the purposes of section 426 in relation to | |
the employment-related securities (and so is nil if there has not been | |
such a previous event). | |
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(6) OP is—
UMV − AMV
UMV
| |
where AMV is the actual market value of the employment-related | |
securities immediately after the chargeable event. | |
(7) CE is any expenses incurred by the holder of the employment- | |
related securities in connection with— | 5 |
(a) the employment-related securities ceasing to be restricted | |
securities or a restricted interest in securities, | |
(b) the variation of a restriction relating to the employment- | |
related securities, or | |
(c) the disposal of the employment-related securities, | 10 |
together (if the chargeable event is one within section 427(3)(a) or (b) | |
(lifting of restrictions and variation of restriction)) with any | |
consideration given for the employment-related securities ceasing to | |
be restricted securities or a restricted interest in securities or the | |
variation of a restriction relating to the employment-related | 15 |
securities. | |
(8) For the purposes of this section each of the following is a “deductible | |
amount”— | |
(a) the amount of any consideration given for the acquisition of | |
the employment-related securities, | 20 |
(b) any amount that constituted earnings from the employee’s | |
employment under Chapter 1 of Part 3 (earnings) in respect | |
of the acquisition of the employment-related securities, | |
(c) any amount that counted as employment income in relation | |
to the employment-related securities under Chapter 2 or 4 of | 25 |
this Part as originally enacted, | |
(d) if a notional loan was treated as made to the employee in | |
respect of the acquisition of the employment-related | |
securities under Chapter 3C of this Part (acquisition of | |
securities for less than market value), the amount of the | 30 |
notional loan initially outstanding, and | |
(e) if the acquisition of the employment-related securities was | |
pursuant to a securities option, any amount that counted as | |
employment income of the employee under section 476 (or | |
section 476 or 477 as originally enacted) (acquisition of | 35 |
securities pursuant to securities option) by reason of the | |
acquisition. | |
(9) If the employment-related securities are convertible securities, or an | |
interest in convertible securities, their market value is to be | |
determined for the purposes of this section as if they were not. | 40 |
429 Case outside charge under section 426 | |
(1) Section 426 (charge on occurrence of chargeable event) does not | |
apply if— | |
(a) the employment-related securities are shares (or an interest | |
in shares) in a company of a class, | 45 |
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(b) the provision by virtue of which the employment-related | |
securities are restricted securities, or a restricted interest in | |
securities, applies to all the company’s shares of the class, | |
(c) all the company’s shares of the class (other than the | |
employment-related securities) are affected by an event | 5 |
similar to that which is a chargeable event in relation to the | |
employment-related securities, and | |
(d) subsection (3) or (4) is satisfied. | |
(2) For the purposes of subsection (1)(c) shares are affected by an event | |
similar to that which is a chargeable event in relation to the | 10 |
employment-related securities— | |
(a) in the case of a chargeable event within section 427(3)(a) | |
(lifting of restrictions), if the provision mentioned in | |
subsection (1)(b) ceases to apply to them, | |
(b) in the case of a chargeable event within section 427(3)(b) | 15 |
(variation of restriction), if that provision is varied in relation | |
to them in the same way as in relation to the employment- | |
related securities, or | |
(c) in the case of a chargeable event within section 427(3)(c) | |
(disposal), if they are disposed of. | 20 |
(3) This subsection is satisfied if, immediately before the event that | |
would be a chargeable event, the company is employee-controlled | |
by virtue of holdings of shares of the class. | |
(4) This subsection is satisfied if, immediately before that event, the | |
majority of the company’s shares of the class are not held by or for | 25 |
the benefit of any of the following— | |
(a) employees of the company, | |
(b) persons who are related to an employee of the company, | |
(c) associated companies of the company, | |
(d) employees of any associated company of the company, or | 30 |
(e) persons who are related to an employee of any such | |
associated company. | |
(5) For the purposes of subsection (4) a person is related to an employee | |
if— | |
(a) the person acquired the shares pursuant to a right or | 35 |
opportunity available by reason of the employee’s | |
employment, or | |
(b) the person is connected with a person who so acquired the | |
shares or with the employee and acquired the shares | |
otherwise than by or under a disposal made by way of a | 40 |
bargain at arm’s length from the employee or another person | |
who is related to the employee. | |
430 Election for outstanding restrictions to be ignored | |
(1) The employer and the employee may elect that— | |
(a) on a chargeable event the taxable amount for the purposes of | 45 |
section 426 is to be determined by applying section 428(1) as | |
if it did not include a reference to OP, and | |
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(b) sections 426 to 429 are not to apply to the employment- | |
related securities after that chargeable event. | |
(2) An election under this section— | |
(a) is to be made by agreement by the employer and the | |
employee, and | 5 |
(b) is irrevocable. | |
(3) Such an agreement— | |
(a) must be made in a form approved by the Board of Inland | |
Revenue, and | |
(b) may not be made more than 14 days after the chargeable | 10 |
event. | |
Supplementary | |
431 Election for full or partial disapplication of this Chapter | |
(1) The employer and the employee may elect in relation to | |
employment-related securities which are restricted securities or a | 15 |
restricted interest in securities that— | |
(a) for the relevant tax purposes their market value at the time of | |
the acquisition is to be calculated as if they were not, and | |
(b) sections 425 to 430 are not to apply to the employment- | |
related securities. | 20 |
(2) Or the employer and the employee may elect in relation to | |
employment-related securities which are restricted securities or a | |
restricted interest in securities that— | |
(a) for the relevant tax purposes their market value at the time of | |
the acquisition is to be calculated, and | 25 |
(b) sections 425 to 430 are to apply to the employment-related | |
securities, | |
as if any specified restriction did not apply to the employment- | |
related securities. | |
(3) For the purposes of subsections (1) and (2) “the relevant tax | 30 |
purposes” are— | |
(a) determining any amount that is to constitute earnings from | |
the employment under Chapter 1 of Part 3 (earnings), | |
(b) determining the amount of any gain realised on the | |
occurrence of an event that is a chargeable event by virtue of | 35 |
section 439(3)(a) (conversion), | |
(c) operating Chapter 3C of this Part (acquisition of securities for | |
less than market value), and | |
(d) determining any amount that counts as employment income | |
of the employee under Chapter 5 of this Part (securities | 40 |
acquired pursuant to securities option). | |
(4) An election under this section— | |
(a) is to be made by agreement by the employer and the | |
employee, and | |
(b) is irrevocable. | 45 |
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(5) Such an agreement— | |
(a) must be made in a form approved by the Board of Inland | |
Revenue, and | |
(b) may not be made more than 14 days after the acquisition. | |
432 Definitions | 5 |
(1) In this Chapter— | |
“interest”, in relation to securities, | |
“securities”, | |
“securities option”, and | |
“shares”, | 10 |
have the meaning indicated in section 420. | |
(2) In this Chapter “market value” has the meaning indicated in section | |
421(1). | |
(3) For the purposes of this Chapter sections 421(2) and 421A apply for | |
determining the amount of the consideration given for anything and | 15 |
section 421I applies for determining the amount of the consideration | |
given for the acquisition of employment-related securities. | |
(4) In this Chapter— | |
“the acquisition”, | |
“the employee” (except in section 429), | 20 |
“the employer”, | |
“the employment”, and | |
“employment-related securities”, | |
have the meaning indicated in section 421B(8). | |
(5) In this Chapter “associated person” has the meaning indicated in | 25 |
section 421C. | |
(6) In this Chapter— | |
“associated company”, and | |
“employee-controlled”, | |
have the meaning indicated in section 421H. | 30 |
(7) In this Chapter— | |
“restricted interest in securities”, and | |
“restricted securities”, | |
have the meaning indicated in sections 423 and 424. | |
(8) In this Chapter “restriction”, in relation to securities or an interest in | 35 |
securities, means provision relating to the securities or interest which | |
is made by any contract, agreement, arrangement or condition and to | |
which any of subsections (2) to (4) of section 423 applies. | |
(9) In this Chapter “variation”, in relation to a restriction, has the | |
meaning indicated in section 427(4). | 40 |
(10) In this Chapter “convertible securities” has the same meaning as in | |
Chapter 3 of this Part (see section 436).”. | |
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