Finance Act 2003 (c. 14)

(The document as of February, 2008)

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(b) "group relief" has the same meaning as in section 402(6) of ICTA.

Tax charge on acquisition

446B Charge on acquisition

(1) This section applies where the market value of employment-related securities at the time of the acquisition has been reduced by at least 10% as a result of things done otherwise than for genuine commercial purposes within the period of 7 years ending with the acquisition.

(2) The taxable amount determined under section 446C counts as employment income of the employee for the tax year in which the acquisition occurs.

(3) But this section does not apply if section 425(2) (no charge on acquisition of certain restricted securities or restricted interests in securities) applies in relation to the employment-related securities.

(4) This section does not affect any liability to income tax arising in respect of the acquisition of the employment-related securities under--

(a) Chapter 1 of Part 3 (earnings),

(b) Chapter 10 of Part 3 (taxable benefits: residual liability to charge),

(d) Chapter 3C of this Part (acquisition for less than market value), or

(e) Chapter 5 of this Part (acquisition pursuant to securities option).

446C Amount of charge

(1) The taxable amount for the purposes of section 446B (charge on acquisition) is--

FMV - MV

(2) FMV is what would be the market value of the employment-related securities at the time of the acquisition if the things mentioned in section 446B(1) had not been done.

(3) MV is the actual market value of the employment-related securities at the time of the acquisition.

(4) But where what would be MV is less than the amount of any consideration given for the acquisition of the employment-related securities, MV is the amount of that consideration.

(5) This section is subject to section 446D (restricted securities and convertible securities).

446D Restricted securities and convertible securities

(1) Where the employment-related securities are restricted securities or a restricted interest in securities, FMV (but not MV) is to be determined as if the employment-related securities were not restricted securities or a restricted interest in securities; and, accordingly, sections 426 to 431 (post-acquisition charges on restricted securities) do not apply to the employment-related securities.

(2) Where the employment-related securities are convertible securities or an interest in convertible securities, FMV and MV are to be determined as if they were not.

Other tax charges

446E Charge on restricted securities

(1) This section applies where the market value of employment-related securities which are restricted securities or a restricted interest in securities is artificially low--

(a) immediately after an event which is a chargeable event in relation to the employment-related securities for the purposes of section 426 (charge on restricted securities), or

(b) on 5th April in any year.

(2) The market value of the employment-related securities is artificially low where it has been reduced by at least 10% as a result of things done otherwise than for genuine commercial purposes within the relevant period.

(3) The reference in subsection (2) of section 428 (amount of charge on restricted securities) to what would be the market value of the employment-related securities is, so far as it relates to subsection (1) of that section, a reference to what would be the market value but for the reduction as a result of the things done as mentioned in subsection (2) (and but for any restrictions).

(4) In a case within subsection (1)(b), there shall be treated as occurring on the 5th April concerned a chargeable event within section 427(3)(a) (lifting of restrictions) in relation to the employment-related securities.

(5) "The relevant period" is the period of 7 years ending with--

(a) in a case within subsection (1)(a), the chargeable event concerned, or

(b) in a case within subsection (1)(b), the 5th April concerned.

(6) But if section 425(2) (no charge on acquisition of certain restricted securities or restricted interests in securities) applied in relation to the employment-related securities, the relevant period is the period beginning 7 years before the acquisition.

446F Adjustment of market value: conditional interests

(1) This section applies where the market value of an employee's interest in shares which is only conditional is artificially low immediately after a chargeable event relating to the shares under section 427 as originally enacted.

(2) The market value of the shares is artificially low where it has been reduced by at least 10% as a result of things done otherwise than for genuine commercial purposes within the period beginning--

(a) 7 years before the chargeable event, or

(b) with 16th April 2003,

whichever is later.

(3) There is a chargeable event in relation to shares if section 427 (as originally enacted) applies in relation to them.

(4) The reference in the definition of MV in section 428(1) (as originally enacted) to the market value of the employee's interest is to what would be the market value but for the reduction as a result of the things done as mentioned in subsection (2).

(5) Expressions used in this section and in Chapter 2 of this Part as originally enacted have the same meaning in this section as in that Chapter.

446G Adjustment of market value: consideration for entitlement to convert

(1) This section applies where the market value of employment-related securities which are convertible securities or an interest in convertible securities (determined as if they were not) has been reduced by at least 10% as a result of things done otherwise than for genuine commercial purposes within the period of 7 years ending with the acquisition.

(2) The reference to the market value of the employment-related securities in the definition of NCMV in section 442(5) (value of convertible securities at time of acquisition) is to what would be the market value but for the reduction as a result of the things done as mentioned in subsection (1) (and but for the fact that they are convertible securities or an interest in convertible securities).

446H Adjustment of market value: charge on conversion

(1) This section applies where the market value of securities ("the converted securities") into which employment-related securities (or securities in which employment-related securities are an interest) are converted is artificially low at the time of an event which is a chargeable event in relation to the employment-related securities by virtue of section 439(3)(a) (conversion).

(2) The market value of the converted securities is artificially low where it has been reduced by at least 10% as a result of things done otherwise than for genuine commercial purposes within the period of 7 years ending with the chargeable event.

(3) The references to the market value of the converted securities in the definition of CMVCS in section 441(6) (amount of gain realised by conversion) are to what would be the market value but for the reduction as a result of the things done as mentioned in subsection (2).

446I Adjustment of consideration or benefit received

(1) This section applies where any consideration or benefit mentioned in--

(a) section 428(9) (consideration on disposal of restricted securities),

(b) section 441(4), (5) or (9) (consideration for disposal of convertible securities or release of entitlement to convert or benefit received in respect of entitlement to convert),

(d) sections 446X and 446Y(3) (consideration for disposal of securities exceeding market value), or

(e) section 448 (securities benefit not otherwise subject to tax),

consists (in whole or in part) in the provision of securities or an interest in securities the market value of which is artificially low.

(2) The market value of any securities or interest in securities is artificially low where it has been reduced by at least 10% as a result of things done otherwise than for genuine commercial purposes within the period of 7 years ending with the receipt of the consideration or benefit.

(3) The market value of the consideration or benefit consisting in the provision of the securities or interest in securities is for the purposes of the provision or provisions concerned to be taken to be what it would be but for the reduction as a result of the things done as mentioned in subsection (2).

Supplementary

446J Definitions

(1) In this Chapter--

"interest", in relation to securities, and
"securities",

have the meaning indicated in section 420.

(2) In this Chapter "market value" has the meaning indicated in section 421(1).

(3) For the purposes of this Chapter sections 421(2) and 421A apply for determining the amount of the consideration given for anything and section 421I applies for determining the amount of the consideration given for the acquisition of employment-related securities.

(4) In this Chapter--

"the acquisition",
"the employee", and
"employment-related securities",

have the meaning indicated in section 421B(8).

(5) In this Chapter--

"restricted interest in securities", and
"restricted securities",

have the same meaning as in Chapter 2 of this Part (see sections 423 and 424).

(6) In this Chapter "restriction" has the same meaning as in Chapter 2 of this Part (see section 432(8)).

(7) In this Chapter "convertible securities" has the same meaning as in Chapter 3 of this Part (see section 436). " .

(2) Sub-paragraph (1) has effect on and after 16th April 2003 (so that sections 446A, 446F to 446H, 446I(1)(b) to (e), (2) and (3) and 446J apply on and after that date in relation to employment-related securities irrespective of the date of the acquisition).

(3) Sections 446E and 446I(1)(a) do not affect any securities, or interests in securities, acquired before 16th April 2003; and, in relation to any securities or interests in securities acquired on or after that date but before the day appointed under paragraph 3(2), those provisions apply only on or after that appointed day.

(4) Section 446F--

(a) applies in relation to conditional interests in shares acquired before 16th April 2003, and

(b) applies during the period beginning with that date and ending with the day preceding that appointed day in relation to conditional interests in shares acquired during that period.

6 (1) After Chapter 3A of Part 7 (inserted by paragraph 5(1)) insert--

" Chapter 3B Securities with artificially enhanced market value

Introduction

446K Application of this Chapter

(1) This Chapter applies in certain cases where the market value of employment-related securities is increased by things done otherwise than for genuine commercial purposes.

(2) The following are among the things that are, for the purposes of this Chapter, 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 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).

(3) In subsection (2)(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.

(4) In this Chapter, in relation to the market value of the employment-related securities--

"non-commercial increase" means an increase in the market value as a result of anything done otherwise than for genuine commercial purposes, and
"non-commercial reduction" means a reduction in the market value as a result of anything done otherwise than for genuine commercial purposes.

Charge on non-commercial increases

446L Charge on non-commercial increases

(1) This section applies in relation to employment-related securities where on a date that is the valuation date in relation to a relevant period IMV is at least 10% greater than MV.

(2) The taxable amount determined under subsection (4) counts as employment income of the employee for the relevant tax year (but subject to sections 446M and 446N).

(3) The "relevant tax year" is the tax year in which the valuation date falls.

(4) The taxable amount is--

IMV - MV

(5) IMV is the market value of the employment-related securities on the valuation date.

(6) MV is the amount that would be the market value of the employment-related securities on the valuation date if any non-commercial increases during the relevant period were disregarded.

(7) For the purposes of subsections (5) and (6)--

(a) any restrictions having effect in relation to the employment-related securities on the valuation date, and

(b) any non-commercial reductions during the relevant period,

are to be disregarded.

446M Securities subject to restriction on valuation date

(1) This section applies where on the valuation date the employment-related securities are relevant restricted securities.

(2) The amount determined under section 446L(4) is to be multiplied by CP.

(3) CP is--

1 - OP

where OP is the amount that would be determined under section 428(5) (amount of charge on chargeable event in relation to restricted securities) on the valuation date if there were on that date a chargeable event (resulting in no tax charge).

(4) For the purposes of this section the employment-related securities are relevant restricted securities if they are restricted securities or a restricted interest in securities but are not subject to--

(a) an election under section 430 (election to ignore outstanding restrictions) in relation to a chargeable event which occurred before the valuation date, or

(b) an election under section 431(1) (election to treat securities as not subject to restrictions).

(5) If sections 425 to 430 apply to the employment-related securities in accordance with section 431(2) (election to treat securities as not subject to specified restrictions), the reference in subsection (3) to the amount that would be determined under section 428(5) is to the amount that would be so determined in accordance with section 431(2).

446N Securities subject to restriction during relevant period

(1) This section applies where the employment-related securities have been restricted securities or a restricted interest in securities at any time during the relevant period.

(2) DA is to be deducted from the amount determined under section 446L(4) (or, where section 446M applies, the amount determined under sections 446L(4) and 446M).

(3) DA is the aggregate of the amounts arrived at under subsection (4) in relation to each event occurring during the relevant period that is a chargeable event in relation to the employment-related securities.

(4) The amount is--

TA - ARTA

(5) TA is the taxable amount actually determined under section 428 in relation to the chargeable event.

(6) ARTA is the taxable amount which would have been determined under section 428 in relation to the chargeable event if any non-commercial increases during the period--

(a) beginning at the same time as the relevant period, and

(b) ending immediately before the chargeable event,

had been disregarded.

Supplementary

446O "Relevant period" and "valuation date"

(1) This section explains what is meant by "relevant period" and "valuation date" in this Chapter.

(2) The first relevant period in relation to employment-related securities is the period beginning with the date of the acquisition and ending with the following 5th April.

(3) After the first relevant period, each period beginning with 6th April and ending with the following 5th April is a relevant period in relation to the employment-related securities.

(4) But if this Chapter ceases to apply to the employment-related securities during a relevant period, the relevant period ends with the date on which this Chapter ceases to apply to them.

(5) And if this Chapter ceases to apply to an interest in the employment-related securities during a relevant period, the relevant period ends in relation to that interest with the date on which this Chapter ceases to apply to that interest.

(6) In a case where subsection (5) applies, this Chapter has effect separately in relation to that interest and the remainder of the employment-related securities.

(7) In this Chapter "valuation date", in relation to a relevant period, means the date with which the relevant period ends.

446P Definitions

(1) In this Chapter "interest", in relation to securities, has the meaning indicated in section 420.

(2) In this Chapter "market value" has the meaning indicated in section 421(1).

(3) In this Chapter--

"the acquisition",
"the employee", and
"employment-related securities",

have the meaning indicated in section 421B(8).

(4) In this Chapter--

"restricted interest in securities", and
"restricted securities",

have the same meaning as in Chapter 2 of this Part (see sections 423 and 424).

(5) In this Chapter "chargeable event" means an event which is a chargeable event for the purposes of section 426.

(6) In this Chapter "restriction" has the same meaning as in Chapter 2 of this Part (see section 432(8)).

(7) In this Chapter--

"non-commercial increase", and
"non-commercial reduction",

have the meaning indicated in section 446K(4).

(8) In this Chapter--

"relevant period", and
"valuation date",

have the meaning indicated in section 446O. " .

(2) Subject as follows, sub-paragraph (1) has effect on and after 16th April 2003 (so that it applies on and after that date in relation to employment-related securities irrespective of the date of the acquisition).

(3) Sections 446M and 446N do not affect any securities, or interests in securities, acquired before 16th April 2003; and, in relation to any securities or interests in securities acquired on or after that date but before the day appointed under paragraph 3(2), those sections apply only on and after that appointed day.

(4) For the purposes of section 446O employment-related securities acquired before 16th April 2003 are to be treated as acquired on that date.

7 (1) After Chapter 3B of Part 7 (inserted by paragraph 6(1)) insert--

" Chapter 3C Securities acquired for less than market value

446Q Application of this Chapter

(1) This Chapter applies if--

(a) no payment is made for employment-related securities at or before the time of the acquisition, or

(b) the payment made for employment-related securities at or before that time is less than their market value.

(2) For the purposes of subsection (1) any obligation to make a payment or further payment after the time of the acquisition is to be disregarded.

(3) Where the employment-related securities are, or are an interest in, securities which are not fully paid up, the reference in subsection (1) to the market value of the employment-related securities is to what it would be if the securities were fully paid up.

(4) If section 425(2) (no charge on acquisition of certain restricted securities or restricted interests in securities) applies in relation to the employment-related securities, this Chapter has effect as if the employment-related securities were not acquired until the occurrence of the first event which is a chargeable event for the purposes of section 426 in relation to the employment-related securities.

(5) This section is subject to section 446R (case outside this Chapter).

446R Case outside this Chapter

(1) This Chapter does not apply if--

(a) the employment-related securities are shares (or an interest in shares) in a company of a class,

(b) all the company's shares of the class are acquired either for no payment or for a payment less than their market value, and

(2) Where the company's shares of the class are not fully paid up, the reference in subsection (1) to their market value is to what it would be if they were fully paid up.

(3) This subsection is satisfied if, at the time of the acquisition of the employment-related securities, the company is employee-controlled by virtue of holdings of shares of the class.

(4) This subsection is satisfied if, at that time, the majority of the company's shares of the class are not held by or for the benefit of any of the following--

(a) employees of the company,

(b) persons who are related to an employee of the company,

(d) employees of any associated company of the company, or

(e) persons who are related to an employee of any such associated company.

(5) For the purposes of subsection (4) a person is related to an employee if--

(a) the person acquired the shares pursuant to a right or opportunity available by reason of the employee's employment, or

(b) the person is connected with a person who so acquired the shares or with the employee and acquired the shares otherwise than by or under a disposal made by way of a bargain at arm's length from the employee or another person who is related to the employee.

446S Notional loan

(1) Where this Chapter applies an interest-free loan ("the notional loan") is to be treated as having been made to the employee by the employer at the time of the acquisition.

(2) The provisions listed in subsection (3) apply as though the notional loan were an employment-related loan as defined in section 174 if and for so long as the employment has not terminated.

(3) The provisions are--

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),
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).

446T Amount of notional loan

(1) The amount of the notional loan initially outstanding is--

MV - DA

where--

MV is the market value of the employment-related securities at the time of the acquisition, and
DA is the total of any deductible amounts.

(2) Where the employment-related securities are, or are an interest in, securities which are not fully paid up, the reference in subsection (1) to the market value of the employment-related securities is to what it would be if the securities were fully paid up.

(3) For the purposes of subsection (1) each of the following is a "deductible amount"--

(a) any payment made for the employment-related securities by the employee, and any payment so made by the person by whom they were acquired (if not the employee), at or before the time of the acquisition,

(b) any amount that constitutes earnings from the employee's employment under Chapter 1 of Part 3 (earnings) in respect of the acquisition of the employment-related securities,

(c) if section 425(2) (no charge on acquisition of certain restricted securities or restricted interests in securities) applies in relation to the employment-related securities, any amount that counts as employment income of the employee under section 426 by reason of the first event which is a chargeable event for the purposes of that section in relation to the employment-related securities,

(d) if the employment-related securities were acquired on a conversion of other employment-related securities, any amount that counts as employment income of the employee under section 438 (charge on conversion) by reason of the conversion, and

(e) if the acquisition is pursuant to a securities option, any amount that counted as employment income of the employee under section 476 (acquisition of securities pursuant to securities option) in respect of the acquisition.

(4) The amount of the notional loan outstanding at any subsequent time is the difference between--

(a) the amount initially outstanding, and

(b) the amount of any payments or further payments made for the employment-related securities after the acquisition but before that time.

446U Discharge of notional loan

(1) The notional loan is treated as discharged when--

(a) the employment-related securities are disposed of otherwise than to an associated person, or

(b) if the employment-related securities were securities, or an interest in securities, not fully paid up at the time of the acquisition, the outstanding or contingent liability to pay for them is released, transferred or adjusted so as no longer to bind any associated person.

(2) If the notional loan is discharged as the result of an event specified in subsection (1), the amount of the notional loan outstanding immediately before the occurrence of the event counts as employment income of the employee for the relevant tax year (whether or not the employment has terminated before or since the acquisition).

(3) The "relevant tax year" is the tax year in which the notional loan is treated as discharged.

(4) The notional loan is also treated as discharged when--

(a) payments or further payments for the employment-related securities equal to the amount initially outstanding in relation to them have been made by an associated person, or

(b) the employee dies.

446V Chapter to be additional to other income tax charges

This Chapter does not affect any liability to income tax arising in respect of the acquisition under--

(a) Chapter 1 of Part 3 (earnings),

(b) Chapter 10 of Part 3 (taxable benefits: residual liability to charge),

(d) Chapter 3A of this Part (securities with artificially depressed market value), or

(e) Chapter 5 of this Part (acquisition of securities pursuant to securities option).

446W Definitions

(1) In this Chapter--

"interest", in relation to securities,
"securities",
"securities option", and
"shares",

have the meaning indicated in section 420.

(2) In this Chapter "market value" has the meaning indicated in section 421(1).

(3) In this Chapter "the acquisition" has the meaning indicated in section 421B(8) (but subject to section 446Q(4)).

(4) In this Chapter--

"the employment",
"the employee" (except in section 446R),
"the employer", and
"employment-related securities",

have the meaning indicated in section 421B(8).

(5) In this Chapter "associated person" has the meaning indicated in section 421C.

(6) In this Chapter--

"associated company", and
"employee-controlled",

have the meaning indicated in section 421H.

(7) In this Chapter "the notional loan" has the meaning indicated in section 446S(1). " .

(2) Sub-paragraph (1) has effect in relation to securities, and interests in securities, acquired on or after 16th April 2003.

8 (1) After Chapter 3C of Part 7 (inserted by paragraph 7(1)) insert--

" Chapter 3D Securities disposed of for more than market value

446X Application of this Chapter

This Chapter applies if--

(a) employment-related securities are disposed of by an associated person so that no associated person is any longer beneficially entitled to them, and

(b) the disposal is for a consideration which exceeds the market value of the employment-related securities at the time of the disposal.

446Y Amount treated as income

(1) Where this Chapter applies the amount determined under subsection (3) counts as employment income of the employee for the relevant tax year.

(2) The "relevant tax year" is the tax year in which the disposal occurs.

(3) The amount is--

CD - MV - DA

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