Office of Public Sector Information
PART 7 continued CHAPTER 6 continued
(1) This section applies if—
(a) a participant (“P”) disposes of P’s beneficial interest in any of P’s plan shares to the trustees, and
(b) the trustees are, as a result of paragraph 6 of Schedule 7D to TCGA 1992 (deemed disposal by trustees on disposal of beneficial interest), treated as having disposed of the shares in question.
(2) If this section applies, sections 510 and 511 apply as if the consideration payable by the trustees to the participant on the disposal had been received by the trustees as the proceeds of disposal of plan shares.
(1) This section applies if the trustees receive a sum of money which constitutes (or forms part of) a capital receipt which, by virtue of the SIP code, counts as employment income of a participant when it is received by the participant.
(2) Out of that sum of money the trustees must pay to the employer company an amount equal to the amount of employment income.
(3) The employer company must then pay over that amount to the participant, but when doing so must make a PAYE deduction.
(4) This section is subject to section 514 (capital receipts: deductions to be made by trustees).
(5) In this section “the employer company” means—
(a) the company which employs the participant in relevant employment at the time when the trustees receive the sum mentioned in subsection (1), or
(b) if the participant is not then employed in relevant employment, the company which last employed the participant in relevant employment before that time,
so long as that company is one to which PAYE regulations apply at that time.
(1) This section applies if—
(a) the trustees receive a sum of money which constitutes (or forms part of) a capital receipt which, by virtue of the SIP code, counts as employment income of a participant when it is received by the participant, and
(b) either condition A or B is met.
(2) Condition A is that the Inland Revenue—
(a) are of the opinion that it is impracticable for the employer company (within the meaning of section 513) to make a PAYE deduction, and
(b) accordingly direct that this section is to apply.
(3) Condition B is that there is no company that qualifies as the employer company (within the meaning of that section).
(4) If this section applies, the trustees must, when paying the capital receipt over to the participant, make a PAYE deduction in respect of the taxable equivalent as if the participant were a former employee of the trustees.
(5) The “taxable equivalent” means an amount equal to the amount which counts as employment income as mentioned in subsection (1)(a).
(6) If this section applies, section 689 (employee of non-UK employer) does not apply.
(1) The following provisions of ICTA relate to SIPs—
(a) sections 68A to 68C and 251A to 251D (which provide for amounts to be charged to income tax under Schedule D Case V or Schedule F where—
(i) dividends are paid out to participants under an approved SIP, or
(ii) dividend shares cease to be subject to the plan in certain circumstances),
(b) sections 686B and 686C (which provide for section 686 of that Act (accumulation and discretionary trusts: special rates of tax) not to apply to income of the trustees of an approved SIP in certain circumstances), and
(c) Schedule 4AA (which makes provision about deductions allowed in calculating trade profits for corporation tax purposes in respect of certain of a company’s expenses relating to—
(i) providing shares for the purposes of an approved SIP, or
(ii) the establishment or operation of the plan).
(2) SIPs are also dealt with in—
(a) Part 1 of Schedule 7D to TCGA 1992 (which provides for relief from capital gains tax for the trustees and for participants in relation to an approved SIP in certain circumstances, including where shares cease to be subject to the plan), and
(b) section 95 of FA 2001 (which contains relief from stamp duty and stamp duty reserve tax for transfers of partnership or dividend shares).
(3) The references in this section to ICTA, TCGA 1992 and FA 2001 are to those Acts as amended by Schedule 6 to this Act.
(1) This Chapter provides—
(a) for the approval of SAYE option schemes by the Inland Revenue, and
(b) for exemptions from income tax in connection with share options granted under those schemes.
(2) Schedule 3 contains the requirements that have to be met for an SAYE option scheme to be approved, together with the approval procedure.
(3) The provisions of—
(a) this and the following sections of this Chapter,
(b) Schedule 3, and
(c) Part 2 of Schedule 7D to TCGA 1992 (approved SAYE option schemes: amount of consideration on exercise of option),
together constitute “the SAYE code”.
(4) In the SAYE code—
“approved” means approved by the Inland Revenue under Schedule 3 (see paragraph 1 of the Schedule);
“SAYE option scheme” means a scheme (commonly referred to as an SAYE share option scheme) which is established by a company and provides—
for share options to be granted to employees and directors, and
for the shares acquired by the exercise of the share options to be paid for in the way mentioned in paragraph 24 of Schedule 3 (payments for shares to be linked to approved savings schemes);
“share option” means a right to acquire shares in a company;
“shares” includes stock.
(5) Other expressions used in the SAYE code and contained in the index at the end of Schedule 3 have the meaning indicated by the index.
(1) This Chapter applies to a share option granted to an individual—
(a) in accordance with the provisions of an approved SAYE option scheme, and
(b) by reason of the individual’s office or employment as a director or employee of a company.
(2) The individual may be a director or employee of the company whose shares are the subject of the share option, or of some other company.
No liability to income tax arises in respect of the receipt of the share option.
(1) No liability to income tax arises in respect of the exercise of the share option if—
(a) the individual exercises it in accordance with the provisions of the SAYE option scheme at a time when the scheme is approved, and
(b) condition A or B is met.
(2) Condition A is that the option is exercised on or after the third anniversary of the date on which it was granted.
(3) Condition B is that the option—
(a) is exercised before the third anniversary of the date on which it was granted, and
(b) is so exercised otherwise than by virtue of a provision included in the scheme under—
paragraph 34(5) of Schedule 3 (exercise of option where scheme-related employment ends), or
paragraph 37 of that Schedule (exercise of option where certain company events occur).
(4) This section does not affect the operation of section 477(4) (no charge on exercise of option by personal representatives etc.).
(5) In Schedule 3—
(a) paragraph 32 provides for the exercise of an option where the holder has died, and
(b) paragraph 42(3) provides for an SAYE option scheme to be treated as approved at the time when an option is exercised even though approval of the scheme has been previously withdrawn.
(1) This section applies if—
(a) the individual exercises the share option in accordance with the provisions of the SAYE option scheme at a time when the scheme is approved, and
(b) condition A or B (as set out in section 519(2) or (3)) is met.
(2) No liability to income tax arises by virtue of—
section 449 (charge where restrictions or rights varied after acquisition), or
section 453 (charge on increase in value of shares of dependent subsidiaries),
in respect of shares acquired by the exercise of the share option.
(3) Paragraph 42(3) of Schedule 3 provides for an SAYE option scheme to be treated as approved at the time when an option is exercised even though approval of the scheme has been previously withdrawn.
(1) This Chapter provides—
(a) for the approval of CSOP schemes by the Inland Revenue,
(b) for exemptions from income tax in connection with share options granted under those schemes, and
(c) for amounts to count as employment income in certain circumstances in connection with such options.
(2) Schedule 4 contains the requirements that have to be met for a CSOP scheme to be approved, together with the approval procedure.
(3) The provisions of—
(a) this and the following sections of this Chapter,
(b) Schedule 4, and
(c) Part 3 of Schedule 7D to TCGA 1992 (approved CSOP schemes: amount of consideration on exercise of option),
together constitute “the CSOP code”.
(4) In the CSOP code—
“approved” means approved by the Inland Revenue under Schedule 4 (see paragraph 1 of the Schedule);
“CSOP scheme” means a scheme (commonly referred to as a company share option plan) which—
is established by a company,
provides for share options to be granted to employees and directors, and
is not an SAYE option scheme (within the meaning of the SAYE code: see section 516(4));
“share option” means a right to acquire shares in a company;
“shares” includes stock.
(5) Other expressions used in the CSOP code and contained in the index at the end of Schedule 4 have the meaning indicated by the index.
(1) This Chapter applies to a share option granted to an individual—
(a) in accordance with the provisions of an approved CSOP scheme, and
(b) by reason of the individual’s office or employment as a director or employee of a company.
(2) The individual may be a director or employee of the company whose shares are the subject of the share option, or of some other company.
(1) No liability to income tax arises in respect of the receipt of the share option.
(2) But this is subject to section 526 (charge where option granted at a discount).
(1) No liability to income tax arises in respect of the exercise of the share option if—
(a) the individual exercises it in accordance with the provisions of the CSOP scheme at a time when the scheme is approved, and
(b) the condition in subsection (2) is met.
(2) The condition is that—
(a) the option (“the current option”) is exercised—
(i) on or after the third anniversary of the date on which it was granted, but
(ii) not later than the tenth anniversary of that date, and
(b) the individual has not made an exempt exercise of another option within the period of 3 years ending with the date on which the current option is exercised.
(3) For the purposes of subsection (2)—
(a) an individual has made an exempt exercise of another option if the individual has exercised a share option granted under the scheme, or under any other approved CSOP scheme, in circumstances in which subsection (1) applied to its exercise, and
(b) an option exercised on the same day as the current option is to be disregarded.
(4) This section does not affect the operation of section 477(4) (no charge on exercise of option by personal representatives etc.).
(5) Paragraph 25 of Schedule 4 provides for the exercise of an option where the holder has died.
(1) This section applies if—
(a) the individual exercises the share option in accordance with the provisions of the CSOP scheme at a time when the scheme is approved, and
(b) the condition set out in section 524(2) is met.
(2) No liability to income tax arises by virtue of—
section 449 (charge where restrictions or rights varied after acquisition), or
section 453 (charge on increase in value of shares of dependent subsidiaries),
in respect of shares acquired by the exercise of the option.
(1) This section applies if, at the time when the share option is granted to the individual, the aggregate of—
(a) the amount or value of any consideration given by the individual for the grant of the option, and
(b) the amount payable by the individual, on exercising the option, in order to acquire the maximum number of shares that may be acquired under it,
is less than the market value of the same quantity of issued shares of the same class.
(2) The amount of the difference counts as employment income of the individual for the relevant tax year.
(3) The “relevant tax year” is the tax year in which the option is granted to the individual.
(4) The following provisions, namely—
(a) section 194 (amount of notional loan in respect of acquisition of shares for less than market value), and
(b) sections 479 and 480 (amount of gain realised by exercising, assigning or releasing option),
provide for deductions to be made to take account of amounts that count as employment income under this section.
(1) This Chapter provides—
(a) for share options notified to the Inland Revenue to be qualifying options for the purposes of the EMI code, and
(b) for exemptions and reliefs from income tax in connection with qualifying options.
(2) Schedule 5 contains the requirements that have to be met for a share option to be a qualifying option, together with the notification procedure.
(3) The provisions of—
(a) this and the following sections of this Chapter,
(b) Schedule 5, and
(c) Part 4 of Schedule 7D to TCGA 1992 (enterprise management incentives: capital gains tax consequences of exercise of qualifying option),
together constitute “the EMI code”.
(4) In the EMI code—
“qualifying option” means a share option—
in relation to which the requirements of Schedule 5 are met at the time when the option is granted, and
which is notified to the Inland Revenue in accordance with Part 7 of that Schedule;
“replacement option” means an option within paragraph 41(4) of that Schedule (grant of replacement option in connection with company reorganisations);
“share option” means a right to acquire shares in a company;
and any reference to the requirements of Schedule 5 is to the requirements set out in paragraph 1(3) of that Schedule.
(5) Other expressions used in the EMI code and contained in the index at the end of Schedule 5 have the meaning indicated by the index.
No liability to income tax arises in respect of the receipt of a qualifying option.
(1) Sections 530 to 540 apply in connection with the exercise of a qualifying option.
(2) But those sections only apply in cases where the option is exercised on or before the tenth anniversary of—
(a) the date of the grant of the option, or
(b) if it is a replacement option, the date of the grant of the original option.
(3) In the EMI code “the original option” means—
(a) where there has been one replacement option, the option that that option replaced, or
(b) where there have been two or more replacement options, the option that the first of them replaced.
(1) This section applies if the option is to acquire shares at not less than their market value—
(a) at the time when the option is granted, or
(b) if it is a replacement option, at the time when the original option was granted.
(2) If this section applies, no liability to income tax arises by virtue of section 476 (charge on exercise etc. of option by employee) in respect of the exercise of the option.
(3) This section has effect subject to section 532 (modified tax consequences following disqualifying events).
(1) This section applies if the option is to acquire shares at less than their market value—
(a) at the time when the option is granted, or
(b) if it is a replacement option, at the time when the original option was granted,
or at nil cost.
(2) If this section applies, the section 476 gain is—
where—
CMV is the chargeable market value,
ACO is the amount or value of the consideration given for the grant of the option, and
ACS is the amount, if any, for which the shares are acquired.
(3) “The chargeable market value” means—
(a) the market value of the shares—
(i) at the time when the option was granted, or
(ii) if it is a replacement option, at the time when the original option was granted, or
(b) the market value of the shares at the time when the option is exercised,
whichever is lower.
(4) In this section “the section 476 gain” means the amount which is to be regarded for the purposes of section 476 (charge on exercise etc. of option by employee) as the amount of the gain realised by exercising the option.
(5) This section has effect subject to section 532 (modified tax consequences following disqualifying events).
(1) This section applies where—
(a) a disqualifying event (see section 533) occurs in relation to a qualifying option before the option is exercised, and
(b) the option is exercised later than 40 days after the day on which the event occurred.
(2) If the option is within section 530(1) (option to acquire shares at market value), the section 476 gain is—
PEG - ACO
(see subsection (4)).
(3) If the option is within section 531(1) (option to acquire shares at less than market value), the section 476 gain is—
(see subsection (4)).
(4) For the purposes of subsections (2) and (3)—
ACO is the amount or value of the consideration given for the grant of the option,
ACS is the amount, if any, for which the shares are acquired,
CMV is the chargeable market value (as defined by section 531(3)), and
PEG is the post-event gain, that is the amount (if any) by which the market value of the shares at the time when the option is exercised exceeds their market value immediately before the disqualifying event.
(5) In those subsections “the section 476 gain” means the amount which is to be regarded for the purposes of section 476 (charge on exercise etc. of option by employee) as the amount of the gain realised by exercising the option.
(6) Nothing in the following provisions—
(a) subsections (2) and (3) above, or
(b) sections 530 and 531,
applies if the amount that counts as employment income by virtue of section 476 in respect of the exercise of the option would, in the absence of those provisions, be less than the amount that counts as such income as a result of those provisions.
(1) The following provisions deal with the events that are (or are to be treated as) disqualifying events in relation to a qualifying option—
(a) section 534 (events relating to the relevant company),
(b) section 535 (events relating to the employee), and
(c) section 536 (other disqualifying events), read with sections 537 to 539 (which contain supplementary provisions).
(2) In the provisions mentioned in subsection (1) “the employee” means the person holding the qualifying option and “the relevant company” means the company whose shares are the subject of the option (see paragraph 1(3) of Schedule 5).
(1) The following events relating to the relevant company are disqualifying events in relation to a qualifying option—
(a) when the relevant company becomes a 51% subsidiary of another company;
(b) when the relevant company comes under the control of—
(i) another company, or
(ii) another company and any other person connected with that other company,
without becoming a 51% subsidiary of that other company;
(c) when the relevant company ceases to meet the trading activities requirement (see paragraphs 13 to 23 of Schedule 5).
(2) But where a replacement option has been granted, an event within subsection (1)(a) or (b) is not a disqualifying event in relation to the old option (see paragraph 41(2) of Schedule 5) if the event occurs at any time during the period—
(a) beginning at the same time as the period within which the replacement option had to be granted (see paragraph 42 of Schedule 5), and
(b) ending with the release of the rights under the old option.
(3) A disqualifying event is to be treated as occurring in relation to a qualifying option if the circumstances mentioned in subsection (4) arise.
(4) The circumstances are that—
(a) the relevant company was a qualifying company at the time when the option was granted as a result only of preparations to carry on a qualifying trade; and
(b) either—
(i) the preparations cease to be carried on, or
(ii) the initial period comes to an end,
without the relevant company (or, if it is a parent company, any member of the group) beginning to carry on that qualifying trade.
(5) “The initial period” means the period of two years after the date when the option was granted.
(6) Paragraph 41(5)(b) of Schedule 5 has the effect that a replacement option is to be treated as granted on the date when the original option was granted.
(1) The following events relating to the employee are disqualifying events in relation to a qualifying option—
(a) when the employee ceases to be an eligible employee in relation to the relevant company as a result of ceasing to meet the requirement in paragraph 25 of Schedule 5 (the employment requirement);
(b) when the employee ceases to be such an employee as a result of ceasing to meet the requirement in paragraph 26 of that Schedule (the requirement as to commitment of working time).
(2) In addition, a disqualifying event is to be treated as occurring in relation to a qualifying option at the end of any tax year if, during that year, the average amount per week of the employee’s reckonable time in relevant employment was less than the statutory threshold.
Income Tax (Earnings and Pensions) Act 2003