Office of Public Sector Information
PART 7 continued CHAPTER 4 continued
(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,
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 chargeable event or increase in value of shares of dependent subsidiaries), as so acquired at the same time as the original shares or the interest in them.
(3) For the purposes of sections 453 to 456 (charge on increase in value of shares of 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 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 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).
(1) This section applies if—
(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 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—
(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) 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, 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.
(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—
(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.
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.
(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.
(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 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).
(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 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 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.
(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—
(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 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-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).
(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 auditors' report is that there is attached to that 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 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 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,
“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),
“period of account”, in relation to a company, means the period for which it makes up its accounts, and
“principal company” means a company of which another company is a 51% subsidiary and which is not itself a 51% subsidiary of another company.
For the purposes of this Chapter a company is “employee—controlled” by virtue 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
(b) those directors and employees are together able as holders of the shares to control the company.
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—
(a) directors or employees of the company,
(b) an associated company of the company, or
(c) directors or employees of any such associated company.
(1) In this Chapter—
“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;
“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 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—
“the acquisition”,
“the employee”,
“the employer company”, and
“the shares”,
have the meaning indicated in section 447(1) to (3).
(1) This Chapter applies to a share option granted by reason of a person’s office or 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.
(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;
and “director” and “employee” have the extended meaning given by section 487(1).
(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 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 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—
(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).
(1) This Chapter (apart from sections 472 and 485) does not apply to a share option 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).
(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.
(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 scheme: charge where option granted at a discount).
(1) This section applies if the share option can be exercised after the tenth anniversary of the date on which it was obtained.
(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—
MV - C
where—
MV is the higher of—
(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—
(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 of TCGA 1992 by virtue of Part 8 of that Act.
(1) This section applies if the employee realises a gain by exercising, assigning or releasing the share option.
(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.
(4) Subsection (2) is subject to—
section 519 (approved SAYE option schemes: no charge in respect of exercise of option),
section 524 (approved CSOP schemes: no charge in respect of exercise of option), and
section 530 (enterprise management incentives: no charge on exercise of option to acquire shares at market value).
(1) This section applies if a person other than the employee realises a gain by 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
(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 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 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 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).
(1) The taxable amount for the purposes of sections 476 and 477 (charges on exercise, assignment or release of option) is—
AG - DA
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”—
(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,
(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 (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
(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.
(1) The amount of the gain realised by exercising the share option is—
MV - DC
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
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;
(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 schemes: 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 option as was deducted in calculating the amount of the gain on that occasion is not a deductible cost.
(4) The amount of the gain is calculated in accordance with section 531 (enterprise management incentives: limitation of charge on exercise of option to acquire shares below market value) or 532 (enterprise management incentives: 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
(b) section 531 or 532, as the case may be, applies.
(1) The amount of the gain realised by assigning or releasing the share option is—
C - DC
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”—
(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 section 526 (approved CSOP schemes: 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 option as was deducted in calculating the amount of the gain on that occasion is not a deductible cost.
(1) The amount calculated under subsection (2) is a deductible amount for the 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
(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—
(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 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 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 contribution).
(5) In this section—
“approval”, in relation to an election, means approval by the Board of Inland Revenue under paragraph 3B of Schedule 1 to the Contributions and Benefits Act; and
“secondary contributor” has the same meaning as in that Act (see section 7).
(1) The amount of the liability referred to in subsection (4) is a deductible amount for the purposes of section 478(1), if conditions A to D are met.
(2) Condition A is that a notice in respect of the share option was given to the Board of Inland Revenue in accordance with section 1 of the Social Security Contributions (Share Options) Act 2001 (c. 20) before 11th August 2001.
(3) Condition B is that the person or one of the persons who gave that notice is a person who (apart from that Act) was liable, or would have become liable, by virtue of an election under paragraph 3B(1) of Schedule 1 to the Contributions and Benefits Act, to pay secondary Class 1 contributions in respect of a gain arising on the exercise, assignment or release of the share option.
(4) Condition C is that that person became liable to pay a special contribution under section 2 of the Social Security Contributions (Share Options) Act 2001 in respect of the share option.
(5) Condition D is that that person met that liability before 11th August 2001 or before the end of such further period as the Board of Inland Revenue directed under section 2(5) of that Act.
(1) For the purposes of this Chapter, a person who receives a benefit in money or money’s worth in consideration for, or otherwise in connection with—
(a) failing or undertaking not to exercise a share option, or
(b) granting or undertaking to grant to another person a right to acquire shares which are subject to a share option or any interest in them,
is to be treated as realising a gain by assigning or releasing the share option for a consideration equal to the amount or value of the benefit.
(2) References in this Chapter to the release of a share option include agreeing to the restriction of the exercise of the option.
(1) This section applies for the purposes of sections 479 and 480 (amount of gain) in determining the amount or value of any consideration given for the grant of the share option.
(2) If any consideration is given partly in respect of the grant and partly in respect of something else, the amount given in respect of the different things is to be determined on a just and reasonable apportionment.
(3) The consideration given wholly or partly for the grant does not include the performance of any duties of, or in connection with, the office or employment by reason of which the share option was granted.
(1) This section applies if—
(a) a share option (“the old option”) is assigned or released, and
(b) the whole or part of the consideration for the assignment or release consists of or includes another share option (“the new option”).
(2) For the purposes of section 480 (amount of gain realised by assigning or releasing option) the new option is not to be treated as consideration for the assignment or release of the old option.
(3) This Chapter applies to the new option as it applies to the old option.
(4) For the purposes of sections 479 and 480 (amount of gain) the amount or value of the consideration for the grant of the new option is to be treated as being the sum of—
(a) the amount by which the amount or value of the consideration given for the grant of the old option exceeds the amount or value of any consideration for the assignment or release of the old option, apart from the new option, and
(b) any valuable consideration given for the grant of the new option, apart from the old option.
(5) Two or more transactions are to be treated for the purposes of subsection (1) as a single transaction by which one share option is assigned for a consideration which consists of or includes another share option if—
(a) the transactions result in—
(i) a person ceasing to hold a share option, and
(ii) that person or a connected person coming to hold another share option, and
(b) one or more of the transactions is effected under arrangements to which two or more persons holding share options, in respect of which there may be liability to tax under this Chapter, are parties.
(6) Subsection (5) applies regardless of the order in which the assignment and the acquisition occur.
Income Tax (Earnings and Pensions) Act 2003