Finance Act 2000 (c. 17)

(The document as of February, 2008)

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(3) For this purpose "interest in land" means, subject to sub-paragraph (4)--

(a) any estate, interest or right in or over land, including any right affecting the use or disposition of land, or

(b) any right to obtain such an estate, interest or right from another which is conditional on the other's ability to grant it.

(4) References in this paragraph to an interest in land do not include--

(a) the interest of a creditor (other than a creditor in respect of a rentcharge) whose debt is secured by way of mortgage, an agreement for a mortgage or a charge of any kind over land, or

(b) in the case of land in Scotland, the interest of a creditor in a charge or security of any kind over land.

Excluded activities: hotels and comparable establishments

24 (1) This paragraph supplements paragraph 19(1)(i).

(2) The reference to a comparable establishment is to a guest house, hostel or other establishment the main purpose of maintaining which is the provision of facilities for overnight accommodation (with or without catering services).

(3) The activities of a person shall not be taken to fall within paragraph 19(1)(i) unless that person has an estate or interest in, or is in occupation of, the hotel or comparable establishment in question.

Excluded activities: nursing homes and residential care homes

25 (1) This paragraph supplements paragraph 19(1)(j).

(2) "Nursing home" means an establishment that exists wholly or mainly for the provision of nursing care--

(a) for persons suffering from sickness, injury or infirmity, or

(b) for women who are pregnant or have given birth to children.

(3) "Residential care home" means an establishment that exists wholly or mainly for the provision of residential accommodation, together with board and personal care, for persons in need of personal care by reason of--

(a) old age,

(b) mental or physical disability,

(d) any past illness, or

(e) past or present mental disorder.

(4) The activities of a person shall not be taken to fall within paragraph 19(1)(j) unless that person has an estate or interest in, or is in occupation of, the nursing home or residential care home in question.

Excluded activities: provision of facilities for another business

26 (1) Providing services or facilities for a business carried on by another person is an excluded activity if--

(a) the business consists to a substantial extent in excluded activities within paragraph 19(1), and

(b) a controlling interest in the business is held by a person (other than a company of which the company providing the services or facilities is a subsidiary) who also has a controlling interest in the business carried on by the company providing the services or facilities.

(2) Sub-paragraphs (3) to (5) define what is meant by a controlling interest in a business for the purposes of sub-paragraph (1)(b).

(3) In the case of a business carried on by a company, a person has a controlling interest if--

(a) he controls the company,

(b) the company is a close company and he or an associate of his, being a director of the company, either--

(i) is the beneficial owner of more than 30% of the ordinary share capital of the company, or

(ii) is able, directly or through the medium of other companies or by any other indirect means, to control more than 30% of that share capital,

(c) not less than half of the business could, in accordance with section 344(2) of the Taxes Act 1988, be regarded as belonging to him for the purposes of section 343 of that Act.

(4) In any other case, a person has a controlling interest in a business if he is entitled to not less than half of the assets used for, or of the income arising from, the business.

(5) For the purposes of sub-paragraph (3)(a) the question whether a person controls a company shall be determined in accordance with section 416(2) to (6) of the Taxes Act 1988.

(6) For the purposes of this paragraph there shall be attributed to any person any rights or powers of any other person who is an associate of his.

(7) In this paragraph--

"associate" has the meaning given in section 417(3) and (4) of the Taxes Act 1988, except that in those subsections as they apply for the purposes of this paragraph "relative" does not include a brother or sister;
"business" includes any trade, profession or vocation; and
"director" shall be construed in accordance with section 417(5) of the Taxes Act 1988.

Part IV Eligible employees

Introduction

27 An individual is an eligible employee in relation to the relevant company if the requirements of this Part of this Schedule are met as to--

(a) employment (see paragraph 28),

(b) commitment of working time (see paragraph 29), and

The employment requirement

28 An employee is an eligible employee in relation to the relevant company only if he is an employee--

(a) of that company, or

(b) if that company is a parent company, of that company or a qualifying subsidiary of that company.

The requirement as to commitment of working time

29 (1) An employee is an eligible employee in relation to the relevant company only if his committed time amounts to--

(a) at least 25 hours a week, or

(b) if less, 75% of his working time.

(2) An employee's "committed time" means the time that he is required as an employee in relevant employment to spend--

(a) on the business of the relevant company, or

(b) if the relevant company is a parent company, on the business of the group.

(3) It includes any time which the employee would have been required to spend as mentioned in sub-paragraph (2) but for--

(a) injury, ill-health or disability,

(b) pregnancy, childbirth, maternity or paternity leave or parental leave,

(d) not being required to work during a period of notice of termination of employment.

(4) For the purposes of this paragraph an employee is in "relevant employment" if he is employed--

(a) by the relevant company, or

(b) where the relevant company is a parent company, by any group company.

References to an employee beginning or ceasing to be in relevant employment are to his becoming or no longer being so employed.

(5) In sub-paragraph (1)(b) "working time" means--

(a) time spent on remunerative work as an employee or self-employed person, or

(b) time which would have been so spent but for any of the reasons specified in sub-paragraph (3)(a) to (d).

(6) In sub-paragraph (5)(a) "remunerative work" means--

(a) work the income from which is chargeable to tax under Case I of Schedule E, and

(b) work undertaken with a view to profit the profits (if any) from which are (or would be) chargeable to tax under Case I or II of Schedule D,

or, in either case, which would be so chargeable if the employee were resident and ordinarily resident in the United Kingdom.

The "no material interest" requirement

30 (1) An individual is not an eligible employee in relation to the relevant company if he has a material interest in--

(a) that company, or

(b) if that company is a parent company, any group company.

(2) For the purposes of this paragraph an individual is regarded as having a material interest in a company if--

(a) the individual,

(b) the individual together with one or more associates of his, or

has a material interest in the company.

(3) No account shall be taken for the purposes of this paragraph of shares that an individual may acquire under a qualifying option, but once such shares have been acquired they are taken into account.

(4) This paragraph is supplemented--

(a) as regards the meaning of "material interest", by paragraphs 31 to 33; and

(b) as regards the meaning of "associate", by paragraph 34 (read with paragraphs 35 and 36).

Meaning of "material interest"

31 (1) For the purposes of paragraph 30 a material interest in a company means--

(a) beneficial ownership of, or the ability to control, directly or through the medium of other companies or by any other indirect means, more than 30% of the ordinary share capital of the company; or

(b) where the company is a close company, possession of or entitlement to acquire such rights as would, in the event of the winding up of the company or in any other circumstances, give an entitlement to receive more than 30% of the assets that would then be available for distribution among the participators.

(2) In this paragraph--

"close company" includes a company that would be a close company but for--
(a)
section 414(1)(a) of the Taxes Act 1988 (exclusion of companies not resident in the United Kingdom), or
(b)
section 415 of that Act (exclusion of certain quoted companies);
"participator" has the meaning given by section 417(1) of that Act.

(3) This paragraph is supplemented by paragraph 32 (options etc.) and paragraph 33 (shares held by trustees of approved profit-sharing schemes).

Material interest: options etc.

32 (1) For the purposes of paragraph 31 (meaning of "material interest") a right to acquire shares (however arising) is treated as a right to control them.

(2) In any case where--

(a) the shares attributed to an individual consist of or include shares which he or another person has a right to acquire, and

(b) the circumstances are such that if that right were to be exercised the shares acquired would be shares which were previously unissued and which the company is contractually bound to issue in the event of the exercise of the right,

then in determining at any time prior to the exercise of the right whether the number of shares attributed to the individual exceeds a particular percentage of the ordinary share capital of the company, that ordinary share capital shall be taken to be increased by the number of unissued shares referred to in paragraph (b).

(3) The references in sub-paragraph (2) to the shares attributed to an individual are to the shares which in accordance with paragraph 31(1)(a) fall to be brought into account in his case to determine whether their number exceeds a particular percentage of the company's ordinary share capital.

Material interest: shares held by trustees of approved profit-sharing schemes etc.

33 In applying paragraph 31 (meaning of "material interest") there shall be disregarded--

(a) the interest of the trustees of--

(i) any profit-sharing scheme approved under Schedule 9 to the Taxes Act 1988, or

(ii) any employee share ownership plan approved under Schedule 8 to this Act,

in any shares which are held by them in accordance with the scheme or plan but which have not been appropriated to, or acquired on behalf of, an individual; and

(b) any rights exercisable by those trustees by virtue of any such interest.

Meaning of "associate"

34 (1) In paragraph 30 (the "no material interest" requirement) "associate", in relation to an individual, means--

(a) any relative or partner of that individual,

(b) the trustee or trustees of any settlement in relation to which that individual, or any relative of his (living or dead), is or was a settlor, and

(c) where that individual is interested in any shares or obligations of the company which are subject to any trust, or are part of the estate of a deceased person, the trustee or trustees of the settlement concerned or, as the case may be, the personal representatives of the deceased.

(2) In sub-paragraph (1)(a) and (b) "relative" means husband or wife, parent or remoter forebear, or child or remoter issue.

(3) In sub-paragraph (1)(b) "settlor" and "settlement" have the same meaning as in Chapter IA of Part XV of the Taxes Act 1988 (see section 660G(1) and (2)).

Meaning of "associate": trustees of employee benefit trust

35 (1) This paragraph applies for the purposes of paragraph 34(1)(c) (meaning of "associate": trustees of settlement) where an individual is interested as a beneficiary of an employee benefit trust in shares or obligations of a company ("the company") in relation to which it falls to be determined whether that individual has an interest.

(2) The trustees of the employee benefit trust are not regarded as associates of the individual by reason only of his being so interested if neither--

(a) the individual, nor

(b) the individual together with one or more associates of his, nor

has at any time on or after 14th March 1989 been the beneficial owner of, or able (directly or through the medium of other companies or by any other indirect means) to control, more than 30% of the ordinary share capital of the company.

(3) In this paragraph "employee benefit trust" has the same meaning as in paragraph 7 of Schedule 8 to the Taxes Act 1988.

(4) Sub-paragraphs (9) to (12) of that paragraph apply for the purposes of this paragraph in relation to an individual as they apply for the purposes of that paragraph in relation to an employee.

(5) In sub-paragraph (2)(b) and (c) "associate" does not include the trustees of an employee benefit trust by reason only that the individual has an interest in shares or obligations of the trust.

Meaning of "associate": trustees of discretionary trust

36 (1) This paragraph applies for the purposes of paragraph 34(1)(c) (meaning of "associate": trustees of settlement) where--

(a) an individual ("the beneficiary") is one of the objects of a discretionary trust, and

(b) the property subject to the trust has at any time consisted of or included shares or obligations of the company ("the company") in relation to which it falls to be determined whether that individual has an interest.

(2) If--

(a) the beneficiary has ceased to be eligible to benefit under the discretionary trust by reason of--

(i) an irrevocable disclaimer or release executed by him, or

(ii) the irrevocable exercise by the trustees of a power to exclude him from the objects of the trust,

(b) immediately after the beneficiary ceased to be so eligible, no associate of his was interested in the shares or obligations of the company which were subject to the trust, and

(c) during the period of twelve months ending with the date when the beneficiary ceases to be so eligible, neither he nor any associate of his received any benefit under the trust,

the beneficiary is not regarded by reason only of the matters mentioned in sub-paragraph (1) as having been interested in the shares or obligations of the company at any time during the period of twelve months mentioned in paragraph (c) above.

(3) In sub-paragraph (2) "associate" has the meaning given by paragraph 34, but with the omission of sub-paragraph (1)(c) of that paragraph (trusts and estates).

Part V Requirements as to terms of option etc.

Introduction

37 An option is not a qualifying option unless the requirements of this Part of this Schedule are met as to--

(a) the type of shares that may be acquired (see paragraph 38);

(b) when the option is capable of being exercised (see paragraph 39);

(d) the non-assignability of rights (see paragraph 41).

Type of shares that may be acquired

38 (1) The option must confer a right to acquire shares that--

(a) form part of the ordinary share capital of the relevant company,

(b) are fully paid up, and

(2) Shares are not fully paid up for the purposes of sub-paragraph (1)(b) if there is any undertaking to pay cash to the relevant company at a future date.

(3) For the purposes of sub-paragraph (1)(c) "redeemable" shares include shares that may become redeemable at a future date.

Option to be capable of exercise within 10 years

39 (1) The option must be capable of being exercised within the period of ten years beginning with the date on which it is granted.

(2) Where the exercise of the option is dependent on the fulfilment of conditions, it is taken to be capable of being exercised within the period mentioned in sub-paragraph (1) if the conditions may be fulfilled within that period.

Terms of option to be agreed in writing

40 (1) The option must take the form of a written agreement between the person granting the option and the employee which meets the following requirements.

(2) The agreement must state--

(a) the date on which the option is granted;

(b) that it is granted under the provisions of this Schedule;

(d) the price (if any) payable by the employee to acquire them, or the method by which that price is to be determined; and

(e) when and how the option may be exercised.

(3) The agreement must set out any conditions, such as performance conditions, affecting the terms or extent of the employee's entitlement.

(4) The agreement must contain details of any restrictions attaching to the shares.

(5) Where the shares that may be acquired by the employee are subject to risk of forfeiture, the agreement must contain details of the conditions.

For this purpose shares are "subject to risk of forfeiture" if the interest that may be acquired is only conditional within the meaning of Section 140C of the Taxes Act 1988.

Non-assignability of rights

41 An option is not a qualifying option unless the terms on which it is granted--

(a) prohibit the person to whom it is granted from transferring any of his rights under it, and

(b) if they permit its exercise after that person's death, do not permit such exercise more than one year after the death.

Part VI Income tax

Introduction

42 (1) The provisions of this Part of this Schedule give relief from income tax in respect of the grant or exercise of a qualifying option.

(2) Relief in respect of the exercise of a qualifying option applies only to exercise within the period of ten years after--

(a) the grant of the option, or

(b) if it is a replacement option, the grant of the original option.

(3) In this Part the references to the "original option", where there has been one or more replacement options, are to the option that the replacement option (or, if there has been more than one, the first of them) replaced.

Exclusion of charge on grant

43 Tax is not chargeable under any provision of the Tax Acts in respect of the grant of the option.

Exercise of option to acquire shares at market value

44 (1) This paragraph applies if the option is to acquire shares at not less than their market value--

(a) at the time the option is granted, or

(b) if it is a replacement option, at the time the original option was granted.

(2) In that case no amount is chargeable to income tax under section 135 of the Taxes Act 1988 (taxation of share options) in respect of the exercise of the option.

(3) This paragraph has effect subject to paragraph 53 (effect of disqualifying event).

Exercise of option to acquire shares at less than market value

45 (1) This paragraph applies if the option is to acquire shares at less than their market value--

(a) at the time the option is granted, or

(b) if it is a replacement option, at the time the original option was granted.

(2) In that case for the purposes of section 135 of the Taxes Act 1988 (taxation of share options) the amount of the gain realised by the exercise of the option is taken to be--

(a) the amount of the discount, or

(b) if lower, the amount by which the market value of the shares at the time the option is exercised exceeds the amount for which they are acquired.

(3) The amount of the discount means the amount by which the market value of the shares--

(a) at the time the option was granted, or

(b) if it is a replacement option, at the time the original option was granted,

exceeds the amount for which they are acquired.

(4) If the market value of the shares at the time the option is exercised does not exceed the amount for which they are acquired, no amount is chargeable to income tax under section 135 of the Taxes Act 1988 (taxation of share options) in respect of the exercise of the option.

(5) This paragraph has effect subject to paragraph 53 (effect of disqualifying event).

Exercise of option to acquire shares at nil cost

46 (1) This paragraph applies if the option is to acquire shares at a nil cost.

(2) In that case for the purposes of section 135 of the Taxes Act 1988 (taxation of share options) the amount of the gain realised by the exercise of the option is taken to be--

(a) the market value of the shares--

(i) at the time the option was granted, or

(ii) if it is a replacement option, at the time the original option was granted, or

(b) if lower, the market value of the shares at the time the option is exercised.

(3) This paragraph has effect subject to paragraph 53 (effect of disqualifying event).

Main disqualifying events

47 (1) The following are "disqualifying events" in relation to a qualifying option--

(a) the relevant company--

(i) becoming a 51% subsidiary of another company, or

(ii) coming under the control of another company (or of another company and any other person connected with that other company), without being a 51% subsidiary of that other company;

(b) the relevant company ceasing to meet the trading activities requirement;

(i) the requirement in paragraph 28 (the employment requirement), or

(ii) the requirement in paragraph 29 (the requirement as to commitment of working time);

(d) any variation of the terms of the option the effect of which is--

(i) to increase the market value of the shares that are the subject of the option, or

(ii) that the requirements of this Schedule would no longer be met in relation to the option;

(e) any alteration to the share capital of the relevant company that is within paragraph 49 and is made without the prior approval of the Inland Revenue;

(f) a conversion of any of the shares to which the option relates into shares of a different class, except in a case within paragraph 50; and

(g) the grant to the employee of a relevant CSOP option, if immediately after it is granted the employee holds unexercised employee options in respect of shares with a total value of more than £100,000.

(2) A disqualifying event is treated as occurring in relation to a qualifying option if--

(a) the relevant company was a qualifying company at the time the option was granted by reason only of preparations to carry on a qualifying trade, and

(b) either--

(i) the preparations cease to be carried on, or

(ii) the period of two years from the grant of the original option comes to an end,

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