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(2) Sub-paragraph (1) has effect on and after such day as the Treasury may by | |
order made by statutory instrument appoint but does not affect any | |
securities, or interests in securities, acquired before 16th April 2003. | |
4 (1) For Chapter 3 of Part 7 substitute— | |
“Chapter 3 | 5 |
Convertible securities | |
Introduction | |
435 Application of this Chapter | |
This Chapter applies to employment-related securities if they are— | |
(a) convertible securities, or | 10 |
(b) an interest in convertible securities, | |
at the time of the acquisition. | |
436 “Convertible securities” | |
For the purposes of this Chapter securities are convertible securities | |
if— | 15 |
(a) they confer on the holder an immediate or conditional | |
entitlement to convert them into securities of a | |
different description, or | |
(b) a contract, agreement, arrangement or condition | |
authorises or requires the grant of such an entitlement | 20 |
to the holder if certain circumstances arise, or do not | |
arise. | |
Tax relief on acquisition | |
437 Adjustment of charge | |
For the purposes of— | 25 |
(a) any liability to tax under Chapter 1 of Part 3 | |
(earnings), Chapter 10 of Part 3 (taxable benefits: | |
residual liability to charge) or Chapter 5 of this Part | |
(acquisition of securities pursuant to securities | |
option), and | 30 |
(b) the operation of Chapter 3C of this Part (acquisition of | |
securities for less than market value), | |
the market value of the employment-related securities is to be | |
determined as if they were not convertible securities or an interest in | |
convertible securities. | 35 |
Tax charge on post-acquisition chargeable events | |
438 Charge on occurrence of chargeable event | |
(1) This section applies if a chargeable event occurs in relation to the | |
employment-related securities. | |
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(2) The taxable amount determined under section 440 counts as | |
employment 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 439 explains what are chargeable events for the purposes of | 5 |
this section. | |
(5) This section is subject to section 443 (case outside charge under this | |
section). | |
439 Chargeable events | |
(1) This section applies for the purposes of section 438 (charge on | 10 |
occurrence of chargeable event). | |
(2) Any of the events mentioned in subsection (3) is a “chargeable event” | |
in relation to the employment-related securities. | |
(3) The events are— | |
(a) the conversion of the employment-related securities (or the | 15 |
securities in which they are an interest) into securities of a | |
different description in circumstances in which an associated | |
person is entitled to a beneficial interest in the employment- | |
related securities before the conversion and in the securities | |
into which they are converted, | 20 |
(b) the disposal for consideration of the employment-related | |
securities, or any interest in them, by an associated person | |
otherwise than to another associated person (at a time when | |
they are still convertible securities or an interest in | |
convertible securities), | 25 |
(c) the release for consideration of the entitlement to convert the | |
employment-related securities (or the securities in which | |
they are an interest) into securities of a different description | |
in circumstances in which an associated person is entitled to | |
a beneficial interest in the employment-related securities, and | 30 |
(d) the receipt by an associated person of a benefit in money or | |
money’s worth in connection with the entitlement to convert | |
(other than securities acquired on the conversion of the | |
employment-related securities or consideration such as is | |
mentioned in paragraph (b) or (c)). | 35 |
(4) A benefit received on account of any disability (within the meaning | |
of the Disability Discrimination Act 1995) of the employee is to be | |
disregarded for the purposes of subsection (3)(d). | |
440 Amount of charge | |
(1) The taxable amount for the purposes of section 438 (charge on | 40 |
occurrence of chargeable event) is—
AG − CE
| |
(2) AG is the amount of any gain realised on the occurrence of the | |
chargeable event. | |
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(3) CE is the amount of any consideration given for the entitlement to | |
convert the employment-related securities or the securities in which | |
they are an interest together with the amount of any expenses | |
incurred by the holder of the employment-related securities in | |
connection with the conversion, disposal, release or receipt. | 5 |
(4) Section 441 explains what is the amount of any gain realised on the | |
occurrence of a chargeable event. | |
(5) Section 442 explains whether consideration is given for the | |
entitlement to convert the employment-related securities or the | |
securities in which they are an interest and, if it is, what is its amount. | 10 |
441 Amount of gain realised on occurrence of chargeable event | |
(1) This section applies for the purposes of section 440 (amount of | |
charge on occurrence of chargeable event). | |
(2) The amount of the gain realised on the occurrence of an event that is | |
a chargeable event by virtue of section 439(3)(a) (conversion) is—
CMVCS − (CMVERS + CC)
| 15 |
(3) The amount of the gain realised on the occurrence of an event that is | |
a chargeable event by virtue of section 439(3)(b) (disposal) is—
DC − CMVERS
| |
(4) The amount of the gain realised on the occurrence of an event that is | |
a chargeable event by virtue of section 439(3)(c) (release of | |
entitlement to convert) is the amount of the consideration received | 20 |
by an associated person in respect of the release. | |
(5) The amount of the gain realised on the occurrence of an event that is | |
a chargeable event by virtue of section 439(3)(d) (receipt of benefit) is | |
the amount or market value of the benefit. | |
(6) CMVCS— | 25 |
(a) if the employment-related securities are securities, is the | |
market value at the time of the chargeable event of the | |
securities into which they are converted (determined, where | |
those securities are themselves convertible securities, as if | |
they were not), or | 30 |
(b) if the employment-related securities are an interest in | |
securities, is the same proportion of that market value as the | |
market value of the interest in the securities in which the | |
employment-related securities are an interest bears to the | |
market value of those securities. | 35 |
(7) CMVERS is the market value of the employment-related securities at | |
the time of the chargeable event determined as if they were not | |
convertible securities or an interest in convertible securities. | |
(8) CC is the amount of any consideration given for the conversion of the | |
employment-related securities. | 40 |
(9) DC is the amount of the consideration given on the disposal. | |
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442 Amount of consideration given for entitlement to convert | |
(1) This section applies for the purposes of section 440 (amount of | |
charge on occurrence of chargeable event). | |
(2) Consideration is to be regarded as given for the entitlement to | |
convert the employment-related securities (or the securities in which | 5 |
they are an interest) if (and only if) ACS exceeds NCMV. | |
(3) The amount of the consideration to be regarded as so given is the | |
amount of the excess. | |
(4) ACS is the amount of the consideration given for the acquisition of | |
the employment-related securities. | 10 |
(5) NCMV is the market value of the employment-related securities at | |
the time of the acquisition, determined as if they were not convertible | |
securities or an interest in convertible securities. | |
443 Case outside charge under section 438 | |
(1) Section 438 (charge on occurrence of chargeable event) does not | 15 |
apply if— | |
(a) the employment-related securities are shares (or an interest | |
in shares) in a company of a class, | |
(b) all the company’s shares of the class are convertible | |
securities, | 20 |
(c) all the company’s shares of the class (other than the | |
employment-related securities) are affected by an event | |
similar to that which is a chargeable event in relation to the | |
employment-related securities, and | |
(d) subsection (3) or (4) is satisfied. | 25 |
(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 | |
employment-related securities— | |
(a) in the case of a chargeable event within section 439(3)(a) | |
(conversion), if they are converted into securities of a | 30 |
different description, | |
(b) in the case of a chargeable event within section 439(3)(b) | |
(disposal), if they are disposed of, | |
(c) in the case of a chargeable event within section 439(3)(c) | |
(release of entitlement to convert), if the entitlement to | 35 |
convert them into securities of a different description is | |
released, or | |
(d) in the case of a chargeable event within section 439(3)(d) | |
(receipt of benefit), if a similar benefit is received in respect of | |
the entitlement to convert them. | 40 |
(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 | 45 |
the benefit of any of the following— | |
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(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 | |
(e) persons who are related to an employee of any such | 5 |
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 | |
opportunity available by reason of the employee’s | 10 |
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 | |
bargain at arm’s length from the employee or another person | 15 |
who is related to the employee. | |
Supplementary | |
444 Definitions | |
(1) In this Chapter— | |
“interest”, in relation to securities, | 20 |
“securities”, and | |
“shares”, | |
have the meaning indicated in section 420. | |
(2) In this Chapter “market value” has the meaning indicated in section | |
421(1). | 25 |
(3) For the purposes of this Chapter sections 421(2) and 421A apply for | |
determining the amount of the consideration given for anything and | |
section 421I applies for determining the amount of the consideration | |
given for the acquisition of employment-related securities. | |
(4) In this Chapter— | 30 |
“the acquisition”, | |
“the employee” (except in section 443), and | |
“employment-related securities”, | |
have the meaning indicated in section 421B(8). | |
(5) In this Chapter “associated person” has the meaning indicated in | 35 |
section 421C. | |
(6) In this Chapter— | |
“associated company”, and | |
“employee-controlled”, | |
have the meaning indicated in section 421H. | 40 |
(7) In this Chapter “convertible securities” has the meaning indicated in | |
section 436.”. | |
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(2) Sub-paragraph (1) has effect on and after the day appointed under | |
paragraph 3(2) (so that, apart from section 437, the provisions of Chapter 3 | |
of Part 7 as substituted by that sub-paragraph apply on and after that day in | |
relation to employment-related securities irrespective of the date of the | |
acquisition). | 5 |
5 (1) After Chapter 3 of Part 7 insert— | |
“Chapter 3A | |
Securities with artificially depressed market value | |
Introduction | |
446A Application of this Chapter | 10 |
(1) This Chapter applies in certain cases where the market value of | |
employment-related securities (or other relevant securities or | |
interests in securities) is reduced by things done otherwise than for | |
genuine commercial purposes. | |
(2) The following are among the things that are, for the purposes of this | 15 |
Chapter, done otherwise than for genuine commercial purposes— | |
(a) anything done as part of a scheme or arrangement the main | |
purpose, or one of the main purposes, of which is the | |
avoidance of tax or national insurance contributions, and | |
(b) any transaction between companies which are members of | 20 |
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 a payment for group relief). | |
(3) In subsection (2)(b)— | |
(a) “group” means a company and its 51% subsidiaries, and | 25 |
(b) “group relief” has the same meaning as in section 402(6) of | |
ICTA. | |
Tax charge on acquisition | |
446B Charge on acquisition | |
(1) This section applies where the market value of employment-related | 30 |
securities at the time of the acquisition has been reduced by at least | |
10% as a result of things done otherwise than for genuine | |
commercial purposes within the period of 7 years ending with the | |
acquisition. | |
(2) The taxable amount determined under section 446C counts as | 35 |
employment income of the employee for the tax year in which the | |
acquisition occurs. | |
(3) But this section does not apply if section 425(2) (no charge on | |
acquisition of certain restricted securities or restricted interests in | |
securities) applies in relation to the employment-related securities. | 40 |
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(4) This section does not affect any liability to income tax arising in | |
respect of the acquisition of the employment-related securities | |
under— | |
(a) Chapter 1 of Part 3 (earnings), | |
(b) Chapter 10 of Part 3 (taxable benefits: residual liability to | 5 |
charge), | |
(c) Chapter 3 of this Part (acquisition by conversion), | |
(d) Chapter 3C of this Part (acquisition for less than market | |
value), or | |
(e) Chapter 5 of this Part (acquisition pursuant to securities | 10 |
option). | |
446C Amount of charge | |
(1) The taxable amount for the purposes of section 446B (charge on | |
acquisition) is—
FMV − MV
| |
(2) FMV is what would be the market value of the employment-related | 15 |
securities at the time of the acquisition if the things mentioned in | |
section 446B(1) had not been done. | |
(3) MV is the actual market value of the employment-related securities | |
at the time of the acquisition. | |
(4) But where what would be MV is less than the amount of any | 20 |
consideration given for the acquisition of the employment-related | |
securities, MV is the amount of that consideration. | |
(5) This section is subject to section 446D (restricted securities and | |
convertible securities). | |
446D Restricted securities and convertible securities | 25 |
(1) Where the employment-related securities are restricted securities or | |
a restricted interest in securities, FMV (but not MV) is to be | |
determined as if the employment-related securities were not | |
restricted securities or a restricted interest in securities; and, | |
accordingly, sections 426 to 431 (post-acquisition charges on | 30 |
restricted securities) do not apply to the employment-related | |
securities. | |
(2) Where the employment-related securities are convertible securities | |
or an interest in convertible securities, FMV and MV are to be | |
determined as if they were not. | 35 |
Other tax charges | |
446E Charge on restricted securities | |
(1) This section applies where the market value of employment-related | |
securities which are restricted securities or a restricted interest in | |
securities is artificially low— | 40 |
(a) immediately after an event which is a chargeable event in | |
relation to the employment-related securities for the | |
purposes of section 426 (charge on restricted securities), or | |
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