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Finance Bill
Schedule 22 — Employee securities and options

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              (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),

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                              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,

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                    (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.

       473            Introduction to taxation of securities options

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              (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),

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                              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),

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                    (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—

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                    (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—

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                    (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).

       474            Cases where this Chapter does not apply

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              (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

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resident and ordinarily resident in the UK).

 

 

Finance Bill
Schedule 22 — Employee securities and options

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              (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

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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

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the acquisition are to the acquisition of the old option (within the

meaning of that section).

Tax relief on acquisition of option

       475            No charge in respect of acquisition of option

              (1)             No liability to income tax arises in respect of the acquisition of an

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employment-related securities option.

              (2)             Subsection (1) is subject to section 526 (approved CSOP                 schemes:

charge where share option granted at a discount).

Tax charge on post-acquisition chargeable events

       476            Charge on occurrence of chargeable event

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              (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)).

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              (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

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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—

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                                      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

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exercise by employee of option to acquire shares at market

value).

 

 

Finance Bill
Schedule 22 — Employee securities and options

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       477            Chargeable events

              (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

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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

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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

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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

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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).

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              (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

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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

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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

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subsection (3)(b) or (c), the person by whom the

consideration or benefit is received.

       478            Amount of charge

              (1)             The taxable amount for the purposes of section 476 (charge on

occurrence of chargeable event) is—equation: plus[times[char[A],char[G]],minus[times[char[D],char[A]]]]

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Schedule 22 — Employee securities and options

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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

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occurrence of a chargeable event.

              (3)             Section 480 specifies what are deductible amounts.

       479            Amount of gain realised on occurrence of chargeable event

              (1)             This section applies for the purposes of section 478 (amount of

charge on occurrence of chargeable event).

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

              (3)             In subsection (2)—

                                      MV is the market value of the securities that are acquired at the

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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

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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

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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

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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—

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                    (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

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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.

 

 

Finance Bill
Schedule 22 — Employee securities and options

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              (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

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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).

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              (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.

       480            Deductible amounts

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              (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

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                    (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—

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                    (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

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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

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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,

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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

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acquisition of the employment-related securities option,

 

 

Finance Bill
Schedule 22 — Employee securities and options

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                    (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

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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

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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.

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              (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.

       481            Deductible amount in respect of secondary Class 1 contributions met

by employee

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              (1)             The amount calculated under subsection (2) is a deductible amount

if—

                    (a)                   an agreement having effect under paragraph 3A of Schedule

1 to the Contributions and Benefits Act has been entered into

allowing the secondary contributor to recover from the

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employee the whole or part of any secondary Class 1

contributions in respect of the gain, or

                    (b)                   an election having effect under paragraph 3B of Schedule 1 to

that Act is in force which has the effect of transferring to the

employee the whole or part of the liability to pay secondary

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Class 1 contributions in respect of the gain.

              (2)             The amount is the sum of—

                    (a)                   any amount that under the agreement referred to in

subsection (1)(a) is recovered in respect of the gain by the

secondary contributor before 5th June in the tax year

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following that in which the gain is realised, and

                    (b)                   the amount of any liability in respect of the gain that, by

virtue of the election referred to in subsection (1)(b), has

become the employee’s liability.

              (3)             If notice of withdrawal of approval of the election is given, the

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amount of any liability in respect of the gain for the purposes of

subsection (2)(b) is limited to the amount of the liability met before

5th June in the tax year following that in which the gain is realised.

              (4)             Subsection (1) does not apply in respect of a liability to pay Class 1

contributions which is prevented from arising by virtue of section

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2(1)(a) of the Social Security Contributions (Share Options) Act 2001

(liability to pay Class 1 contributions in respect of gains replaced by

liability to pay special contribution).

 

 

Finance Bill
Schedule 22 — Employee securities and options

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              (5)             In this section—

                                      “approval”, in relation to an election, means approval by the

Board of Inland Revenue under paragraph 3B of Schedule 1

to the Contributions and Benefits Act, and

                                      “secondary contributor” has the same meaning as in that Act

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(see section 7).

       482            Deductible amount in respect of special contribution met by employee

              (1)             The amount of the liability referred to in subsection (4) is a

deductible amount if conditions A to D are met.

              (2)             Condition A is that a notice in respect the employment-related

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securities option was given to the Board of Inland Revenue in

accordance with section 1 of the Social Security Contributions (Share

Options) Act 2001 before 11th August 2001.

              (3)             Condition B is that the person, or one of the persons, who gave that

notice is a person who (apart from that Act) was liable, or would

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have become liable, by virtue of an election under paragraph 3B of

Schedule 1 to the Contributions and Benefits Act, to pay secondary

Class 1 contributions in respect of an event which is a chargeable

event for the purposes of section 476.

              (4)             Condition C is that that person became liable to pay a special

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contribution under section 2 of the Social Security Contributions

(Share Options) Act 2001 in respect of the employment-related

securities option.

              (5)             Condition D is that that person met that liability before 11th August

2001 or before the end of such further period as the Board of Inland

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Revenue directed under section 2(5) of that Act.

Supplementary provisions

       483            Application of this Chapter where option exchanged for another

              (1)             This section applies if—

                    (a)                   the employment-related securities option (the “old option”)

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is assigned or released, and

                    (b)                   the whole or part of the consideration for the assignment or

release consists of or includes another securities option (the

“new option”).

              (2)             For the purposes of section 479(5) (amount of gain realised by

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assigning or releasing option) the new option is not to be treated as

consideration given for the assignment or release of the old option.

              (3)             This Chapter applies to the new option as it applies to the old option.

              (4)             For the purposes of section 480(2) (consideration for acquisition of

option) the amount of the consideration given for the acquisition of

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the new option is to be treated as being the sum of—

                    (a)                   the amount by which the amount of the consideration given

for the acquisition of the old option exceeds the amount of

 

 

 
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