Income Tax (Earnings and Pensions) Act 2003

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 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—

• 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-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 (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,

(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.

(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;

(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—

(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

(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 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).

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 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;

(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 chargeable event.

(5) But in such a case section 453 (charge on increase in value of shares of dependent subsidiaries) may apply.