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Income Tax (Earnings and Pensions) Bill


Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 4 — Post-acquisition benefits from shares

    224

 

Chapter 4

Post-acquisition benefits from shares

Introduction

 447   Application of this Chapter

     (1)    This Chapter applies where a person (“the employee”)—

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           (a)           acquires shares or an interest in shares in a company, and

           (b)           does so as a director or employee of that or another company.

     (2)    In this Chapter (unless the context indicates a different meaning)—

                    “the acquisition” means the acquisition of shares or an interest in shares

mentioned in subsection (1)(a);

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                    “the shares” means the shares mentioned there;

            and “director” and “employee” have the extended meaning given by section

470(1).

     (3)    The company as a director or employee of which the employee acquires the

shares or the interest in them is “the employer company” for the purposes of

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this Chapter.

     (4)    For the purposes of this Chapter a person (“E”) acquires shares or an interest in

shares “as a director or employee” of a company if E acquires the shares or

interest in pursuance of—

           (a)           a right conferred on, or an opportunity offered to, E by reason of E’s

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office as a director of, or E’s employment by, the company; or

           (b)           a right assigned to E after having been conferred on some other person

by reason of E’s office as a director of, or E’s employment by, the

company.

     (5)    In addition, if a person (“A”) acquires shares or an interest in shares in a

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company in pursuance of a right conferred on, or opportunity offered to, A as

a person connected with a director or employee of that or another company

(“the company”), the director or employee is to be treated for the purposes of

this Chapter—

           (a)           as acquiring the shares or interest “as a director or employee” of the

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company, and

           (b)           as holding any beneficial interest in the shares for the time being held

by A;

            and subsections (1) to (3) apply accordingly.

     (6)    Section 463 provides for a person to be treated as continuing to have a

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beneficial interest in shares until there is a qualifying disposal for the purposes

of that section.

 448   Cases where this Chapter does not apply

     (1)    This Chapter does not apply where a person has acquired shares or an interest

in shares as a director or employee of a company if the earnings from the office

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or employment in question 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).

 

 

Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 4 — Post-acquisition benefits from shares

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     (2)    This Chapter does not apply where a person has acquired shares or an interest

in shares under the terms of an offer to the public.

     (3)    In a case within section 544(1) (exemption for priority share allocations where

offer to employees separate from public offer), any acquisition made under the

terms of either the public offer or the employee offer within the meaning of that

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section is to be treated for the purposes of this Chapter as made under the

terms of an offer to the public.

     (4)    Subsection (3) applies whether or not there is any benefit within section 544(2)

(benefit derived from entitlement to priority allocation exempt from income

tax).

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Tax charge where restrictions or rights varied

 449   Charge on occurrence of chargeable event

     (1)    This section applies if a chargeable event occurs in relation to the shares at a

time when the employee has not ceased to have a beneficial interest in them.

     (2)    The taxable amount determined under section 451 counts as employment

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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 450 explains what are chargeable events for the purposes of this

section.

     (5)    This section is subject to—

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                      section 452 (cases outside charge under this section),

                      section 494 (approved SIPs: no charge on removal of restrictions),

                      section 520 (approved SAYE option schemes: no charge in respect of post-

acquisition benefits), and

                      section 525 (approved CSOP schemes: no charge in respect of post-

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acquisition benefits).

 450   Chargeable events

     (1)    This section applies for the purposes of section 449 (charge on occurrence of

chargeable event).

     (2)    Unless excluded by subsection (4), any of the events mentioned in subsection

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(3) is a “chargeable event” in relation to shares in a company if it increases the

value of the shares or would do so but for the occurrence of some other event.

     (3)    The events are—

           (a)           the removal or variation of a restriction applying to the shares,

           (b)           the creation or variation of a right relating to the shares,

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           (c)           the imposition of a restriction applying to other shares in the company,

           (d)           the variation of a restriction applying to other shares in the company,

and

           (e)           the removal or variation of a right relating to other shares in the

company.

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Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 4 — Post-acquisition benefits from shares

    226

 

     (4)    An event within subsection (3) is not a “chargeable event” if the restriction or

right applies to all shares of the class concerned and any of the following

conditions is met at the time of the event—

           (a)           the company is employee-controlled because of holdings of shares of

the relevant class;

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           (b)           the majority of the company’s shares of the relevant class are held by

outside shareholders;

           (c)           the company is a 51% subsidiary with shares of a single class.

     (5)    “The relevant class” means the class of shares to which the shares belong.

     (6)    References in this section—

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           (a)            to restrictions to which shares are subject, or

           (b)            to rights relating to shares,

            are references to such restrictions imposed or rights conferred by contract,

arrangement or in any other way.

 451   Amount of charge

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     (1)    The taxable amount for the purposes of section 449 (charge on occurrence of

chargeable event) is—

           (a)           the amount by which the value of the shares is increased by the

chargeable event, or

           (b)           if that amount is affected by the occurrence of some other event, the

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amount by which that value would have been increased but for that

other event.

     (2)    If the interest of the employee is less than full beneficial ownership, the taxable

amount is an appropriate proportion of the amount mentioned in subsection

(1)(a) or (b).

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 452   Cases outside charge under section 449

     (1)    Section 449 (charge on occurrence of chargeable event) does not apply in the

following cases.

     (2)    Section 449 does not apply if, by virtue of section 427 (charge on interest

ceasing to be only conditional, etc.), an amount counts as employment income

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of the employee in respect of the chargeable event.

     (3)    Section 449 does not apply in relation to shares in a company if the employee

has not, at any time in the period of 7 years ending with the date on which the

chargeable event occurs, been a director or employee of—

           (a)           the employer company;

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           (b)           if different, the company whose shares they are; or

           (c)           an associated company of a company within paragraph (a) or (b).

     (4)    Section 449 does not apply in relation to shares in a company which—

           (a)           was a dependent subsidiary at the time of the acquisition, or

           (b)           is a dependent subsidiary immediately before the time of the

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chargeable event.

     (5)    But in such a case section 453 (charge on increase in value of shares in

dependent subsidiaries) may apply.

 

 

Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 4 — Post-acquisition benefits from shares

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Tax charge on increase in value of shares in dependent subsidiaries

 453   Charge on increase in value of shares of dependent subsidiary

     (1)    This section applies if the shares are shares in a company —

           (a)           which was a dependent subsidiary at the time of the acquisition, or

           (b)           which was not then a dependent subsidiary but becomes one before the

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employee ceases to have a beneficial interest in the shares,

            and (in either case) there is a chargeable increase in the value of the shares.

     (2)    The taxable amount determined under section 455 counts as employment

income of the employee for the relevant tax year.

     (3)    The “relevant tax year” is the tax year which includes the appropriate time

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(within the meaning of section 454(2) or (4)) by reference to which the

chargeable increase is determined under that provision.

     (4)    Section 454 explains what are chargeable increases for the purposes of this

section.

     (5)    This section is subject to—

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                    section 456 (cases outside charge under this section),

                    section 495 (approved SIPs: no charge on increase in value of shares),

                    section 520 (approved SAYE option schemes: no charge in respect of post-

acquisition benefits), and

                    section 525 (approved CSOP schemes: no charge in respect of post-

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acquisition benefits).

 454   Chargeable increases

     (1)    This section applies for the purposes of section 453 (charge on increase in value

of shares of dependent subsidiary).

     (2)    In a case within section 453(1)(a) (dependent subsidiary at time of the

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acquisition) there is a “chargeable increase” in the value of the shares if the

value of the shares at the appropriate time exceeds their value at the time of the

acquisition.

     (3)    In subsection (2) “the appropriate time” means whichever is the earlier of—

           (a)           the end of the period of 7 years after the date of the acquisition, and

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           (b)           the time when the employee ceases to have a beneficial interest in the

shares.

     (4)    In a case within section 453(1)(b) (company becoming dependent subsidiary

after time of acquisition) there is a “chargeable increase” in the value of the

shares if the value of the shares at the appropriate time exceeds their value at

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the time when the company becomes a dependent subsidiary.

     (5)    In subsection (4) “the appropriate time” means whichever is the earlier or

earliest of—

           (a)           the end of the period of 7 years after the date on which the company

becomes a dependent subsidiary,

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           (b)           the time when the employee ceases to have a beneficial interest in the

shares, and

 

 

Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 4 — Post-acquisition benefits from shares

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           (c)           if the company ceases to be a dependent subsidiary, the time when it

does so.

 455   Amount of charge

     (1)    The taxable amount for the purposes of section 453 (charge on increase in value

of shares in dependent subsidiary) is—equation: plus[char[I],minus[times[char[D],char[A]]]]

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            where—

                    I is the amount of the chargeable increase in value of the shares, and

                    DA is the total of any deductible amounts.

            This is subject to subsections (3) and (4).

     (2)    For the purposes of subsection (1)—

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           (a)           if the consideration for the acquisition is subsequently increased in

accordance with the terms on which the acquisition was made, the

amount of that increase is a “deductible amount”;

           (b)           if, before the time by reference to which the chargeable increase is

determined, an event occurs in respect of the shares by virtue of which

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an amount counts as employment income of the employee under—

                  (i)                 Chapter 2 of this Part (conditional interests in shares), or

                  (ii)                Chapter 3 of this Part (convertible shares),

                         that amount is a “deductible amount”.

     (3)    If, in accordance with the terms on which the acquisition was made, the

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employee subsequently ceases to have a beneficial interest in the shares as the

result of a disposal made for a consideration which is less than the value of the

shares or the employee’s interest in them at the time of the disposal, the

amount “I” in subsection (1) is—

           (a)           if the disposal is within section 454(3)(b), an amount equal to the excess

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of that consideration over the value of the shares or interest at the time

of the acquisition, or

           (b)           if the disposal is within section 454(5)(b), an amount equal to the excess

of that consideration over the value of the shares or interest at the time

of the company becoming a dependent subsidiary.

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     (4)    If the interest of the employee is less than full beneficial ownership, the amount

“I” in subsection (1) is an appropriate proportion of the amount that it would

be apart from this subsection.

 456   Cases outside charge under section 453

     (1)    Section 453 (charge on increase in value of shares of dependent subsidiary)

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does not apply in the following cases.

     (2)    Section 453 does not apply if—

           (a)           the chargeable increase arises in relation to a disposal of the employee’s

beneficial interest in the shares, and

           (b)           by virtue of section 427 (charge on interest ceasing to be only

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conditional, etc.), an amount counts as employment income of the

employee in respect of the disposal.

     (3)    Section 453 does not apply in relation to shares in a company within subsection

(1)(b) of that section (company becoming a dependent subsidiary after

 

 

Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 4 — Post-acquisition benefits from shares

    229

 

     (3)    acquisition) if the employee has not, at any time in the period of 7 years ending

with the date on which the company became a dependent subsidiary, been a

director or employee of—

           (a)           the employer company,

           (b)           if different, the company whose shares they are, or

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           (c)           an associated company of a company within paragraph (a) or (b).

Tax charge on other benefits from shares

 457   Charge on other chargeable benefits from shares

     (1)    This section applies if a person within subsection (2) receives a chargeable

benefit by virtue of that person’s ownership of or interest in the shares.

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     (2)    The persons within this subsection are—

           (a)           the employee,

           (b)           the person referred to as “A” in section 447(5) (shares acquired by

connected person), in a case where that provision applies in relation to

the shares;

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           (c)           any other person, in a case where the employee is for the time being

treated as continuing to have a beneficial interest in the shares by virtue

of section 463 (disposals of shares to connected persons etc. ignored).

     (3)    The taxable amount determined under section 459 counts as employment

income of the employee for the relevant tax year.

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     (4)    The “relevant tax year” is the tax year in which the benefit is received.

     (5)    Section 458 explains what are chargeable benefits for the purposes of this

section.

     (6)    This section—

           (a)           does not apply if the benefit is otherwise chargeable to income tax, and

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           (b)           is subject to section 460 (cases outside charge under this section).

 458   Chargeable benefits

     (1)    This section applies for the purposes of section 457 (charge on other chargeable

benefits from shares).

     (2)    A benefit received by a person is a “chargeable benefit” if subsection (3), (4) or

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(5) applies to the benefit.

     (3)    This subsection applies to a benefit if, at the time when it becomes available, it

is available to less than 90% of the persons who then hold shares of the same

class as the shares.

     (4)    This subsection applies to a benefit if, at the time when it is received—

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           (a)           the company is a dependent subsidiary, and

           (b)           its shares are of a single class.

     (5)    This subsection applies to a benefit if, at the time when it is received, none of

the conditions in subsection (6) is met.

     (6)    The conditions are—

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Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 4 — Post-acquisition benefits from shares

    230

 

           (a)           that the majority of the company’s shares in respect of which the benefit

is received are held by outside shareholders;

           (b)           that the company is employee-controlled by virtue of holdings of

shares of the same class as the shares;

           (c)           that, in a case where the company is a 51% subsidiary which is not a

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dependent subsidiary, the majority of its shares in respect of which the

benefit is received are held otherwise than by or for the benefit of—

                  (i)                 directors or employees of the company,

                  (ii)                a company which is an associated company of the company but

is not its parent company, or

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                  (iii)               directors or employees of a company which is an associated

company of the company.

     (7)    For the purposes of this section—

           (a)           “the company”, in relation to the shares (see section 457(1)), means the

company whose shares they are; and

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           (b)           a company (“P”) is the “parent company” of another company (“S”) if S

is a 51% subsidiary of P.

 459   Amount of charge

The taxable amount for the purposes of section 457 (charge on other chargeable

benefits) is the amount which the person receiving the benefit might

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reasonably expect to obtain from a sale in the open market.

 460   Cases outside charge under section 457

Section 457 (charge on other chargeable benefits) does not apply in relation to

shares in a company if the employee has not, at any time in the period of 7 years

ending with the date on which the benefit is received, been a director or

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employee of—

           (a)           the employer company,

           (b)           if different, the company whose shares they are, or

           (c)           an associated company of a company within paragraph (a) or (b).

Supplementary provisions

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 461   Related acquisitions of additional shares

     (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,

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            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

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chargeable event or increase in value of shares in dependent

subsidiaries), as so acquired at the same time as the original shares or

the interest in them.

 

 

 
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