House of Lords portcullis
House of Lords
Session 2002 - 03
Internet Publications
Other Bills before Parliament

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

    231

 

     (3)    For the purposes of sections 453 to 456 (charge on increase in value of shares in

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

5

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

10

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).

 462   Company reorganisations etc.

     (1)    This section applies if—

15

           (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

20

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—

25

           (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)

30

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,

35

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.

 463   Disposals of shares to connected persons etc. ignored

40

     (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—

 

 

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

    232

 

           (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.

5

 464   Application to interests in shares

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.

 465   Duty to notify acquisitions of shares or interests in shares

10

     (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.

15

     (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

20

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).

25

 466   Duty to notify chargeable events and chargeable benefits

     (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

30

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

35

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.

 

 

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

    233

 

Interpretation

 467   Meaning of “dependent subsidiary”

     (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—

5

           (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

10

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-

15

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).

20

     (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 auditor’s report is that there is attached to that

25

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

30

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

35

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,

40

                    “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),

45

                    “period of account”, in relation to a company, means the period for which

it makes up its accounts, and

 

 

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

    234

 

                    “principal company” means a company of which another company is a

51% subsidiary and which is not itself a 51% subsidiary of another

company.

 468   Meaning of “employee-controlled”

For the purposes of this Chapter a company is “employee-controlled” by virtue

5

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

10

           (b)           those directors and employees are together able as holders of the shares

to control the company.

 469   Shares “held by outside shareholders”

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—

15

           (a)           directors or employees of the company,

           (b)           an associated company of the company, or

           (c)           directors or employees of any such associated company.

 470   Minor definitions

     (1)    In this Chapter—

20

                    “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;

25

                    “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

30

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—

35

                    “the acquisition,”

                    “the employee”,

                    “the employer company”, and

                    “the shares”,

            have the meaning indicated in section 447(1) to (3).

40

 

 

Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 5 — Share options

    235

 

Chapter 5

Share options

Introduction

 471   Share options to which this Chapter applies

     (1)    This Chapter applies to a share option granted by reason of a person’s office or

5

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.

10

     (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;

15

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

487(1).

 472   Introduction to taxation of share options

     (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

20

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

25

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—

30

           (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).

 473   Share options to which this Chapter does not apply

     (1)    This Chapter (apart from sections 472 and 485) does not apply to a share option

35

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).

 

 

Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 5 — Share options

    236

 

     (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.

Receipt of share option

5

 474   No charge in respect of receipt of shorter-term option

     (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

10

option granted at a discount).

 475   Value of longer-term option for purposes of liability to tax in respect of

receipt

     (1)    This section applies if the share option can be exercised after the tenth

anniversary of the date on which it was obtained.

15

     (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—equation: plus[times[char[M],char[V]],minus[char[C]]]

            where—

                    MV is the higher of—

20

                  (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—

25

                  (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

30

of TCGA 1992 by virtue of Part 8 of that Act.

Tax charge on exercise, assignment or release of share option

 476   Charge on exercise, assignment or release of option by employee

     (1)    This section applies if the employee realises a gain by exercising, assigning or

releasing the share option.

35

     (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.

 

 

Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 5 — Share options

    237

 

     (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

5

                    section 530 (enterprise management incentives: no charge on exercise of

option to acquire shares at market value).

 477   Charge on employee where option exercised, assigned or released by another

person

     (1)    This section applies if a person other than the employee realises a gain by

10

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

15

           (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

20

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

25

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

30

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).

 478   Amount of charges

     (1)    The taxable amount for the purposes of sections 476 and 477 (charges on

exercise, assignment or release of option) is—equation: plus[times[char[A],char[G]],minus[times[char[D],char[A]]]]

35

            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”—

40

           (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,

 

 

 
previous section contents continue
 
House of Lords home page Houses of Parliament home page House of Commons home page search page enquiries

© Parliamentary copyright 2003
Revised 17 February 2003