Office of Public Sector Information
SCHEDULE 22 continued
(1) The amount of the notional loan initially outstanding is—
MV - DA
where—
MV is the market value of the employment-related securities at the time of the acquisition, and
DA is the total of any deductible amounts.
(2) Where the employment-related securities are, or are an interest in, securities which are not fully paid up, the reference in subsection (1) to the market value of the employment-related securities is to what it would be if the securities were fully paid up.
(3) For the purposes of subsection (1) each of the following is a “deductible amount”—
(a) any payment made for the employment-related securities by the employee, and any payment so made by the person by whom they were acquired (if not the employee), at or before the time of the acquisition,
(b) any amount that constitutes earnings from the employee’s employment under Chapter 1 of Part 3 (earnings) in respect of the acquisition of the employment-related securities,
(c) 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, any amount that counts as employment income of the employee under section 426 by reason of the first event which is a chargeable event for the purposes of that section in relation to the employment-related securities,
(d) if the employment-related securities were acquired on a conversion of other employment-related securities, any amount that counts as employment income of the employee under section 438 (charge on conversion) by reason of the conversion, and
(e) if the acquisition is pursuant to a securities option, any amount that counted as employment income of the employee under section 476 (acquisition of securities pursuant to securities option) in respect of the acquisition.
(4) The amount of the notional loan outstanding at any subsequent time is the difference between—
(a) the amount initially outstanding, and
(b) the amount of any payments or further payments made for the employment-related securities after the acquisition but before that time.
(1) The notional loan is treated as discharged when—
(a) the employment-related securities are disposed of otherwise than to an associated person, or
(b) if the employment-related securities were securities, or an interest in securities, not fully paid up at the time of the acquisition, the outstanding or contingent liability to pay for them is released, transferred or adjusted so as no longer to bind any associated person.
(2) If the notional loan is discharged as the result of an event specified in subsection (1), the amount of the notional loan outstanding immediately before the occurrence of the event counts as employment income of the employee for the relevant tax year (whether or not the employment has terminated before or since the acquisition).
(3) The “relevant tax year” is the tax year in which the notional loan is treated as discharged.
(4) The notional loan is also treated as discharged when—
(a) payments or further payments for the employment-related securities equal to the amount initially outstanding in relation to them have been made by an associated person, or
(b) the employee dies.
This Chapter does not affect any liability to income tax arising in respect of the acquisition under—
(a) Chapter 1 of Part 3 (earnings),
(b) Chapter 10 of Part 3 (taxable benefits: residual liability to charge),
(c) Chapter 3 of this Part (acquisition by conversion),
(d) Chapter 3A of this Part (securities with artificially depressed market value), or
(e) Chapter 5 of this Part (acquisition of securities pursuant to securities option).
(1) In this Chapter—
“interest”, in relation to securities,
“securities”,
“securities option”, and
“shares”,
have the meaning indicated in section 420.
(2) In this Chapter “market value” has the meaning indicated in section 421(1).
(3) In this Chapter “the acquisition” has the meaning indicated in section 421B(8) (but subject to section 446Q(4)).
(4) In this Chapter—
“the employment”,
“the employee” (except in section 446R),
“the employer”, and
“employment-related securities”,
have the meaning indicated in section 421B(8).
(5) In this Chapter “associated person” has the meaning indicated in section 421C.
(6) In this Chapter—
“associated company”, and
“employee-controlled”,
have the meaning indicated in section 421H.
(7) In this Chapter “the notional loan” has the meaning indicated in section 446S(1).”.
(2) Sub-paragraph (1) has effect in relation to securities, and interests in securities, acquired on or after 16th April 2003.
8 (1) After Chapter 3C of Part 7 (inserted by paragraph 7(1)) insert—
This Chapter applies if—
(a) employment-related securities are disposed of by an associated person so that no associated person is any longer beneficially entitled to them, and
(b) the disposal is for a consideration which exceeds the market value of the employment-related securities at the time of the disposal.
(1) Where this Chapter applies the amount determined under subsection (3) counts as employment income of the employee for the relevant tax year.
(2) The “relevant tax year” is the tax year in which the disposal occurs.
(3) The amount is—
CD - MV - DA
where—
CD is the amount of the consideration given on the disposal,
MV is the market value of the employment-related securities at the time of the disposal, and
DA is the amount of any expenses incurred in connection with the disposal.
(1) In this Chapter “market value” has the meaning indicated in section 421(1).
(2) For the purposes of this Chapter sections 421(2) and 421A apply for determining the amount of the consideration given for anything.
(3) In this Chapter—
“the employee”, and
“employment-related securities”,
have the meaning indicated in section 421B(8).
(4) In this Chapter “associated person” has the meaning indicated in section 421C.”.
(2) Sub-paragraph (1) has effect in relation to securities, and interests in securities, disposed of on or after 16th April 2003.
9 (1) For Chapter 4 of Part 7 substitute—
(1) This Chapter applies if an associated person receives a benefit by virtue of the ownership of employment-related securities by that person or another associated person.
(2) The taxable amount determined under section 448 counts as employment income of the employee for the relevant tax year.
(3) The “relevant tax year” is the tax year in which the benefit is received.
(4) This section does not apply if the benefit is otherwise chargeable to income tax.
(5) This section is subject to section 449 (case outside this Chapter).
The taxable amount for the purposes of section 447 (charge on other chargeable benefits) is the amount or market value of the benefit.
(1) This Chapter does not apply if—
(a) the employment-related securities are shares (or an interest in shares) in a company of a class,
(b) a similar benefit is received by the owners of all the company’s shares of the class, and
(c) subsection (2) or (3) is satisfied.
(2) This subsection is satisfied if, immediately before the receipt of the benefit, the company is employee-controlled by virtue of holdings of shares of the class.
(3) This subsection is satisfied if, immediately before the receipt of the benefit, the majority of the company’s shares of the class are not held by or for 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
(e) persons who are related to an employee of any such associated company.
(4) For the purposes of subsection (3) 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 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 who is related to the employee.
(1) In this Chapter—
“interest”, in relation to shares, and
“shares”,
have the meaning indicated in section 420(8).
(2) In this Chapter “market value” has the meaning indicated in section 421(1).
(3) In this Chapter—
“the employee” (except in section 449), and
“employment-related securities”,
have the meaning indicated in section 421B(8).
(4) In this Chapter “associated person” has the meaning indicated in section 421C.
(5) In this Chapter—
“associated company”, and
“employee-controlled”,
have the meaning indicated in section 421H.”.
(2) Subject to sub-paragraph (3), sub-paragraph (1) has effect on and after 16th April 2003 (so that it applies on and after that date in relation to employment-related securities irrespective of the date of the acquisition).
(3) The provisions of Chapter 4 as originally enacted which are mentioned in sub-paragraph (4)—
(a) continue to apply in relation to shares, and interests in shares, acquired before 16th April 2003, and
(b) apply in relation to shares, and interests in shares, acquired on or after that date until the day appointed under paragraph 3(2).
In this sub-paragraph “shares” means shares in a company or securities as defined in section 254(1) of the Taxes Act 1988 issued by a company.
(4) The provisions are—
section 450(1), (2), (3)(a), (4), (5) and (6)(a), and
sections 447 to 449, section 451, section 452(1) to (3), section 461(1) and (2), section 462, sections 464 to 466 and sections 468 to 470, so far as relevant for the purposes of those provisions of section 450 (or the other provisions mentioned in this subsection so far as so relevant).
10 (1) For Chapter 5 of Part 7 substitute—
(1) This Chapter applies to a securities option acquired by a person where the right or opportunity to acquire the securities option is available by reason of an employment of that person or any other person.
(2) For the purposes of subsection (1) “employment” includes a former or prospective employment.
(3) A right or opportunity to acquire a securities option made available by a person’s employer, or a person connected with a person’s employer, is to be regarded for the purposes of subsection (1) as available by reason of an employment of that person unless—
(a) the person by whom the right or opportunity is made available is an individual, and
(b) the right or opportunity is made available in the normal course of the domestic, family or personal relationships of that person.
(4) A right or opportunity to acquire a securities option available by reason of holding employment-related securities is to be regarded for the purposes of subsection (1) as available by reason of the same employment as that by reason of which the right or opportunity to acquire the employment-related securities was available.
(5) In this Chapter—
“the acquisition”, in relation to an employment-related securities option, means the acquisition of the employment-related securities option pursuant to the right or opportunity available by reason of the employment,
“the employment” means the employment by reason of which the right or opportunity to acquire the employment-related securities option is available (“the employee” and “the employer” being construed accordingly), and
“employment-related securities option” means a securities option to which this Chapter applies.
(1) For the purposes of this Chapter the following are “associated persons” in relation to an employment-related securities option—
(a) the person who acquired the employment-related securities option on the acquisition,
(b) (if different) the employee, and
(c) any relevant linked person.
(2) A person is a relevant linked person if—
(a) that person (on the one hand), and
(b) either the person who acquired the employment-related securities option on the acquisition or the employee (on the other),
are connected or, although not connected, are members of the same household.
(3) But a company which would otherwise be a relevant linked person is not if it is—
(a) the employer,
(b) the person from whom the employment-related securities option was acquired, or
(c) the person by whom the right or opportunity to acquire the employment-related securities option was made available.
(1) The starting-point is that section 475 contains an exemption from the liability to tax that might otherwise arise under—
(a) Chapter 1 of Part 3 (earnings), or
(b) Chapter 10 of that Part (taxable benefits: residual liability to charge),
when an employment-related securities option is acquired.
(2) Liability to tax may arise, when securities are acquired pursuant to the employment-related securities option, under—
(a) section 446B (charge on acquisition where market value of securities or interest artificially depressed),
(b) Chapter 3C of this Part (acquisition of securities for less than market value), or
(c) section 476 (acquisition of securities pursuant to securities option).
(3) Liability to tax may also arise by virtue of section 476 when—
(a) the employment-related securities option is assigned or released, or
(b) a benefit is received in connection with the employment-related securities option.
(4) There are special rules relating to share options acquired 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 473 and 483) does not apply in relation to an employment-related securities option if, at the time of the acquisition, the earnings from the 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 473 and 483) does not apply in the case of a former employment if it would not apply if the acquisition had taken place in the last tax year in which the employment was held.
(3) This Chapter (apart from sections 473 and 483) does not apply in the case of a prospective employment if it would not apply if the acquisition had taken place in the first tax year in which the employment is held.
(4) Where the employment-related securities option is a new option (within the meaning of section 483), the references in this section to the acquisition are to the acquisition of the old option (within the meaning of that section).
(1) No liability to income tax arises in respect of the acquisition of an employment-related securities option.
(2) Subsection (1) is subject to section 526 (approved CSOP schemes: charge where share option granted at a discount).
(1) This section applies if a chargeable event occurs in relation to an employment-related securities option.
(2) The taxable amount determined under section 478 counts as employment income of the employee for the relevant tax year (but subject to subsection (5)).
(3) The “relevant tax year” is the tax year in which the chargeable event occurs.
(4) Section 477 explains what are chargeable events for the purposes of this section.
(5) If the employee has been divested of the employment-related securities option by operation of law, the person who is the relevant person in relation to the chargeable event (see section 477(7)) is chargeable to tax under Case VI of Schedule D on the amount determined under section 478.
(6) This section is subject to—
section 519 (approved SAYE option schemes: no charge in respect of exercise of share option by employee),
section 524 (approved CSOP schemes: no charge in respect of exercise of share option by employee), and
section 530 (enterprise management incentives: no charge on exercise by employee of option to acquire shares at market value).
(1) This section applies for the purposes of section 476 (charge on occurrence of chargeable event).
(2) Any of the events mentioned in subsection (3) is a “chargeable event” in relation to the employment-related securities option unless it occurs on or after the death of the employee.
(3) The events are—
(a) the acquisition of securities pursuant to the employment-related securities option by an associated person,
(b) the assignment for consideration of the employment-related securities option by an associated person otherwise than to another associated person or the release for consideration of the employment-related securities option by an associated person, or
(c) the receipt by an associated person of a benefit in money or money’s worth in connection with the employment-related securities option (other than securities acquired pursuant to the employment-related securities option or consideration for its assignment or release).
(4) For the purposes of subsection (3)(a) securities are acquired at the time when a beneficial interest is acquired (and not, if different, the time when the securities are conveyed or transferred).
(5) 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)(c).
(6) A benefit in money or money’s worth received in consideration for or otherwise in connection with—
(a) failing or undertaking not to acquire securities pursuant to the employment-related securities option, or
(b) granting or undertaking to grant to another person a right to acquire securities which are subject to the employment-related securities option or any interest in them,
is to be regarded for the purposes of subsection (3)(c) as received in connection with the employment-related securities option.
(7) For the purposes of section 476(5) (charge under Case VI of Schedule D) the relevant person in relation to a chargeable event is—
(a) in the case of an event that is a chargeable event by virtue of subsection (3)(a), the person by whom the securities are acquired, and
(b) in the case of an event that is a chargeable event by virtue of subsection (3)(b) or (c), the person by whom the consideration or benefit is received.
(1) The taxable amount for the purposes of section 476 (charge on occurrence of chargeable event) is—
AG - DA
where—
AG is the amount of any gain realised on the occurrence of the chargeable event, and
DA is the total of any deductible amounts.
(2) Section 479 explains what is the amount of any gain realised on the occurrence of a chargeable event.
(3) Section 480 specifies what are deductible amounts.
(1) This section applies for the purposes of section 478 (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 477(3)(a) (acquisition of securities) is (subject to subsection (4))—
MV - C
(3) In subsection (2)—
MV is the market value of the securities that are acquired at the time when they are acquired, and
C is the amount of any consideration given for the securities that are acquired.
(4) But the amount of the gain realised on the occurrence of an event that is a chargeable event by virtue of section 477(3)(a) (acquisition of securities) is calculated—
(a) if section 531 (enterprise management incentives: limitation of charge on exercise of option to acquire shares below market value) applies, in accordance with that section, and
(b) if section 532 (enterprise management incentives: modified tax consequences following disqualifying events) applies, in accordance with that section.
(5) The amount of the gain realised on the occurrence of an event that is a chargeable event by virtue of section 477(3)(b) (assignment or release of option) is the amount of the consideration given for the assignment or release.
(6) The amount of the gain realised on the occurrence of an event that is a chargeable event by virtue of section 477(3)(c) (receipt of benefit in connection with option) is the amount or market value of the benefit.
(7) But if—
(a) the consideration mentioned in subsection (5), or
(b) the benefit mentioned in subsection (6),
consists (in whole or in part) in the provision of securities or an interest in securities the market value of which 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 receipt of the consideration or benefit, its market value is to be taken to be what it would be but for the reduction.
(8) The following are among the things that are, for the purposes of subsection (7), 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 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).
(9) In subsection (8)(b)—
(a) “group” means a company and its 51% subsidiaries, and
(b) “group relief” has the same meaning as in section 402(6) of ICTA.
(1) This section applies for the purposes of section 478 (amount of charge on occurrence of chargeable event).
(2) The amount of—
(a) any consideration given for the acquisition of the employment-related securities option, and
(b) the amount of any expenses incurred in connection with the acquisition of securities, assignment, release or receipt which constitutes the chargeable event,
is a deductible amount.
(3) Where in consequence of—
(a) the acquisition of the employment-related securities option,
(b) the acquisition of securities pursuant to the employment-related securities option, or
(c) a transaction of which the acquisition of the employment-related securities option or the acquisition of securities pursuant to the employment-related securities option forms part,
there is a reduction in the market value of any employment-related securities to which an associated person is beneficially entitled, the amount of the reduction is to be treated for the purposes of subsection (2) as consideration (or additional consideration) given for the acquisition of the employment-related securities option.
(4) 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 employment-related securities option, so much of that amount as is attributable to the shares in question is a deductible amount.
(5) The following are also deductible amounts—
(a) any amount that constituted earnings from the employment under Chapter 1 of Part 3 (earnings) in respect of the acquisition of the employment-related securities option,
(b) any amount that was treated as earnings from the employment under Chapter 10 of that Part (taxable benefits: residual liability to charge) in respect of the acquisition of the employment-related securities option, and
(c) the amount of any gain by a previous holder on an assignment of the employment-related securities option which would have been a deductible cost by virtue of subsection (2)(c) of section 479 (as originally enacted) on an exercise of the option at a time when that section was in force.
(6) If there has been a previous chargeable event in relation to the employment-related securities option (or if section 476 or 477 as originally enacted applied to the option by virtue of an earlier event), so much of any deductible amount as was deducted in calculating the taxable amount on the occasion of that event is to be regarded as not being a deductible amount.
(7) Sections 481 and 482 (deductible amounts in respect of secondary Class 1 contributions or special contribution met by the employee) specify further deductible amounts.
Finance Act 2003