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Income Tax (Earnings and Pensions) Bill


Income Tax (Earnings and Pensions) Bill
Part 3 — Employment income: earnings and benefits etc. treated as earnings
Chapter 7 — Taxable benefits: loans

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Loan released or written off

 188   Loan released or written off: amount treated as earnings

     (1)    If—

           (a)           the whole or part of an employment-related loan is released or written

off in a tax year, and

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           (b)           at the time when it is released or written off the employee holds the

employment in relation to which the loan is an employment-related

loan (“employment E”),

            the amount released or written off is to be treated as earnings from the

employment for that year.

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     (2)    But if the employment has terminated or become an excluded employment and

there was a time when—

           (a)           the whole or part of the loan was outstanding,

           (b)           the employee held the employment, and

           (c)           it was not an excluded employment,

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            subsection (1) applies as if the employment had not terminated or become an

excluded employment.

     (3)    Where subsection (2) applies, any loan which replaces directly or indirectly the

employment-related loan is to be treated as an employment-related loan in

relation to employment E if—

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           (a)           it would, if employment E had not terminated or become excluded

employment, have been an employment-related loan in relation to

employment E, and

           (b)           it is not an employment-related loan in relation to other employment.

     (4)    This section is subject to section 189 (exception where double charge).

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 189   Exception where double charge

     (1)    Section 188 (loan released or written off: amount treated as earnings) does not

apply if, by virtue of any other provision of the Income Tax Acts, the amount

released or written off—

           (a)           is employment income of the employee, or

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           (b)           is or is treated as income of the employee (or of the employee as a

borrower) which is not employment income and upon which that

person is liable to pay income tax.

            This is subject to subsections (2) and (3).

     (2)    If, as a result of subsection (1), Chapter 3 of Part 6 (payments and benefits on

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termination of employment etc.) would be the only provision by virtue of

which the amount released or written off would be income of the employee—

           (a)           section 188 does apply, and

           (b)           accordingly Chapter 3 of Part 6 does not apply.

     (3)    If—

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           (a)           an amount is treated as the employee’s income under section 677 of

ICTA (sums paid to settlor otherwise than as income) in respect of a

capital sum paid in relation to the release or writing-off of the loan, and

           (b)           the amount released or written off exceeds the amount so treated as

income,

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Income Tax (Earnings and Pensions) Bill
Part 3 — Employment income: earnings and benefits etc. treated as earnings
Chapter 7 — Taxable benefits: loans

    92

 

            section 188 does apply but only the amount of the excess is to be treated as

earnings from the employment for the tax year in question under that section.

General supplementary provisions

 190   Exclusion of charge after death of employee

     (1)    On the employee’s death a taxable cheap loan is to be treated—

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           (a)           for the purposes of this Chapter as ceasing to be outstanding, and

           (b)           for the purposes of section 182 (normal method of calculating interest

at the official rate) as being discharged on the date of death.

     (2)    Section 188 (loan released or written off: amount treated as earnings) does not

apply in relation to a release or writing off which takes effect on or after the

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death of the employee.

 191   Claim for relief to take account of event after assessment

     (1)    A claim may be made for relief in the following cases.

     (2)    The first case is where—

           (a)           the tax payable by an employee for a tax year in respect of a loan has

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been decided on the basis that, for the purposes of section 175 (benefit

of taxable cheap loan treated as earnings), the whole or part of the

interest payable on the loan for that year was not paid, and

           (b)           it is subsequently paid.

     (3)    The second case is where—

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           (a)           the tax payable by an employee for a tax year in respect of a loan has

been decided on that basis that, for the purposes of section 188 (loan

released or written off: amount treated as earnings), the loan has been

released or written off in that year, and

           (b)           the whole or part of the loan is subsequently repaid.

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     (4)    The third case is where—

           (a)           the tax payable by an employee for a tax year in respect of a loan has

been decided on the basis that—

                  (i)                 section 288 (limited exemption of certain bridging loans

connected with employment moves), and

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                  (ii)                section 289 (relief for certain bridging loans not qualifying for

exemption under section 288),

                         will not apply because the condition in section 288(1)(b) (which

requires that the limit on the exemption under section 287(1) has not

been reached) will not be met, and

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           (b)           that condition is met.

     (5)    Where a claim is made under this section the tax payable is to be adjusted

accordingly.

 

 

Income Tax (Earnings and Pensions) Bill
Part 3 — Employment income: earnings and benefits etc. treated as earnings
Chapter 8 — Taxable benefits: notional loans in respect of acquisitions of shares

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Chapter 8

Taxable benefits: notional loans in respect of acquisitions of shares

Introduction

 192   Application of this Chapter

     (1)    This Chapter applies where—

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           (a)           shares in a company are, or an interest in shares in a company is,

acquired by an employee or a person connected with an employee, and

           (b)           the right or opportunity to acquire the shares or interest in shares was

available by reason of the employment.

     (2)    The shares may be in the employer, or in another company.

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     (3)    A right or opportunity to acquire shares or an interest in shares which is made

available by the employer is to be regarded as made available by reason of the

employment unless—

           (a)           the employer is an individual, and

           (b)           the right or opportunity is made available in the normal course of the

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employer’s domestic, family or personal relationships.

     (4)    In this Chapter—

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

mentioned in subsection (1), and

                    “the employment-related shares” means the shares or interest in shares

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acquired.

Acquisition of shares for less than market value

 193   Notional loan where acquisition for less than market value

     (1)    This section applies if—

           (a)           no payment is made for the employment-related shares at or before the

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time of the acquisition, or

           (b)           the payment made at or before that time is less than—

                  (i)                 the market value at that time of fully paid up shares of their

class, or

                  (ii)                if the employment-related shares consist of an interest in shares,

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the proportion of the market value at that time of fully paid up

shares of the same class as those in which the interest subsists

that corresponds to the size of the interest.

     (2)    For the purposes of subsection (1), any obligation to make payment or further

payment at some later time is to be disregarded.

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     (3)    The provisions listed in subsection (4) apply as if a loan (“the notional loan”)

had been made to the employee by the employer at the time of the acquisition

which—

           (a)           is an employment-related loan as defined in section 174, and

           (b)           is interest-free.

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     (4)    The provisions are—

 

 

Income Tax (Earnings and Pensions) Bill
Part 3 — Employment income: earnings and benefits etc. treated as earnings
Chapter 8 — Taxable benefits: notional loans in respect of acquisitions of shares

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                    section 175 (benefit of taxable cheap loan treated as earnings),

                    section 178 (exception for loans where interest qualifies for tax relief),

                    section 180 (threshold for benefit of loan to be treated as earnings),

                    section 182 (normal method of calculation: averaging),

                    section 183 (alternative method of calculation),

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                    section 184 (interest treated as paid),

                    section 185 (apportionment of cash equivalent in case of joint loan etc.),

and

                    section 187 (aggregation of loans by close company to director).

     (5)    This section is subject to—

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                    section 491 (approved SIPs: no charge on award of shares as taxable

benefit),

                    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

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option),

                    section 540 (enterprise management incentives: no charge on acquisition

of shares as taxable benefit),

                    section 542 (exemption: offer made to public and employees), and

                    section 544 (exemption: different offers made to public and employees).

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 194   The amount of the notional loan

     (1)    The amount of the notional loan initially outstanding is—equation: plus[times[char[M],char[V]],minus[times[char[D],char[A]]]]

            where—

                    MV is—

                  (a)                 the market value of fully paid up shares of the same class as the

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employment-related shares, or

                  (b)                 if the employment-related shares consist of an interest in shares,

the proportion of the market value of fully paid up shares of the

same class as those in which the interest subsists that

corresponds to the size of the interest, and

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                    DA is the total of any deductible amounts.

     (2)    For the purposes of subsection (1) each of the following is a “deductible

amount”—

           (a)           any payment made for the employment-related shares at or before the

time of the acquisition;

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           (b)           any amount that constitutes earnings from the employee’s

employment under Chapter 1 of this Part (earnings) in respect of the

acquisition;

           (c)           if the acquisition results from the exercise of a share option—

                  (i)                 any amount that constitutes earnings from the employment

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under Chapter 1 of this Part (earnings) in respect of the receipt

of the share option,

                  (ii)                any amount that is treated as earnings from the employment

under Chapter 10 of this Part (taxable benefits: residual liability

to charge) in respect of its receipt, and

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Income Tax (Earnings and Pensions) Bill
Part 3 — Employment income: earnings and benefits etc. treated as earnings
Chapter 8 — Taxable benefits: notional loans in respect of acquisitions of shares

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                  (iii)               any amount that counts as employment income of the employee

under section 476 or 477 (charge on employee on exercise etc. of

option) in respect of the exercise; and

           (d)           if the acquisition results from the exercise of a share option and an

amount counts as employment income of the employee under section

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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 employment-related shares.

     (3)    The amount of the notional loan outstanding at any subsequent time is the

difference between—

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           (a)           the amount initially outstanding, and

           (b)           the amount of any payments or further payments made for the

employment-related shares after the acquisition but before that time.

 195   Discharge of notional loan: amount treated as earnings

     (1)    The notional loan is to be treated as discharged when the following occurs—

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           (a)           payments or further payments for the employment-related shares

equal to the amount initially outstanding have been made,

           (b)           if the employment-related shares were not fully paid up at the time of

the acquisition, any outstanding or contingent obligation to pay for

them ceases to bind the employee or any person connected with the

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employee,

           (c)           the employment-related shares are disposed of so that neither the

employee nor any person connected with the employee any longer has

a beneficial interest in them, or

           (d)           the employee dies.

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     (2)    If—

           (a)           a notional loan is discharged as a result of an event specified in

subsection (1)(b) or (c), and

           (b)           at the time of that event the employee holds the employment by reason

of which the right or opportunity to make the acquisition was available,

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            the amount of the notional loan outstanding immediately before the

occurrence of the event is to be treated as earnings from the employment for

the tax year in which the event occurs.

     (3)    But if the employment has terminated or become an excluded employment

before that event and there was a time when—

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           (a)           the whole or part of the notional loan was outstanding,

           (b)           the employee held the employment, and

           (c)           it was not an excluded employment,

            subsection (2) applies as if the employment had not terminated or become an

excluded employment.

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Supplementary provisions

 196   Effects on other income tax charges

Nothing in this Chapter affects any liability to income tax arising in respect of

the acquisition by virtue of—

           (a)           Chapter 1 of this Part (earnings), or

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Income Tax (Earnings and Pensions) Bill
Part 3 — Employment income: earnings and benefits etc. treated as earnings
Chapter 9 — Taxable benefits: disposals of shares for more than market value

    96

 

           (b)           section 476 or 477 (charge on employee on exercise etc. of option by

employee or another person).

 197   Minor definitions

     (1)    In this Chapter—

                    “employee” includes a prospective employee;

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                    “interest in shares” means an interest in shares less than full beneficial

ownership and includes an interest in the proceeds of sale of part of the

shares, but not a right to acquire shares;

                    “market value” has the same meaning as it has for the purposes of TCGA

1992 by virtue of Part 8 of that Act;

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                    “shares” includes—

                  (a)                 stock, and

                  (b)                 any securities as defined in section 254(1) of ICTA.

     (2)    In this Chapter references to the acquisition of shares or an interest in shares

include receipt by way of allotment or assignment or in any other way.

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     (3)    In this Chapter references to payment for the employment-related shares

include giving any consideration in money or money’s worth or making any

subscription, whether in pursuance of a legal liability or not.

     (4)    In this Chapter—

                    “the acquisition”, and

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                    “the employment-related shares”,

            have the meaning indicated in section 192(4).

Chapter 9

Taxable benefits: disposals of shares for more than market value

 198   Shares to which this Chapter applies

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     (1)    This Chapter applies to shares in a company which have, or an interest in

shares in a company which has, been acquired by an employee or a person

connected with an employee, if the right or opportunity to acquire the shares

or interest in shares was available by reason of the employment.

     (2)    In this Chapter, “employment-related shares” means shares, or an interest in

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shares, acquired as mentioned in subsection (1).

     (3)    The shares may be in the employer, or in another company.

     (4)    A right or opportunity to acquire shares or an interest in shares which is made

available by the employer is to be regarded as made available by reason of the

employment unless—

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           (a)           the employer is an individual, and

           (b)           the right or opportunity is made available in the normal course of the

employer’s domestic, family or personal relationships.

 199   Disposal for more than market value: amount treated as earnings

     (1)    This section applies if—

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Income Tax (Earnings and Pensions) Bill
Part 3 — Employment income: earnings and benefits etc. treated as earnings
Chapter 9 — Taxable benefits: disposals of shares for more than market value

    97

 

           (a)           employment-related shares are disposed of so that neither the

employee nor any person connected with the employee any longer has

a beneficial interest in them, and

           (b)           the disposal is for a consideration which exceeds the market value of

the employment-related shares at the time of the disposal.

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     (2)    But this section does not apply if the disposal occurs after the death of the

employee.

     (3)    The amount given by the following formula is to be treated as earnings from

the employee’s employment for the tax year in which the disposal occurs—equation: plus[times[char[C],char[D]],minus[times[char[M],char[V]]]]

            where—

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                      CD is the amount or value of the consideration for the disposal, and

                      MV is the market value of the employment-related shares at the time of

the disposal.

     (4)    But if—

           (a)           the employment has terminated or become an excluded employment

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before the disposal, and

           (b)           at the time of the acquisition of the employment-related shares the

employee held, or was about to hold, the employment and it was not an

excluded employment,

            this section applies as if the employment had not terminated or become an

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excluded employment.

     (5)    If the employment-related shares consist of an interest in shares, the references

in this section to the market value of the employment-related shares are to the

proportion corresponding to the size of the interest of the market value of the

shares in which the interest subsists.

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 200   Minor definitions

     (1)    In this Chapter—

                    “employee” includes a prospective employee;

                    “interest in shares” means an interest in shares less than full beneficial

ownership and includes an interest in the proceeds of sale of part of the

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shares, but not a right to acquire shares;

                    “market value” has the same meaning as it has for the purposes of TCGA

1992 by virtue of Part 8 of that Act;

                    “shares” includes—

                  (a)                 stock, and

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                  (b)                 any securities as defined in section 254(1) of ICTA.

     (2)    In this Chapter references to the acquisition of shares or an interest in shares

include receipt by way of allotment or assignment or in any other way.

     (3)    In this Chapter “employment-related shares” has the meaning indicated in

section 198(2).

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