Income Tax (Earnings and Pensions) Act 2003

[F1Application of Chapters 2 to [F24A] U.K.

421BApplication of Chapters 2 to [F34A] U.K.

(1)Subject as follows (and to any provision contained in Chapters 2 to [F44A] ) those Chapters apply to securities, or an interest in securities, acquired by a person where the right or opportunity to acquire the securities or interest is available by reason of an employment of that person or any other person.

(2)For the purposes of subsection (1)—

(a)securities are, or an interest in securities is, acquired at the time when the person acquiring the securities or interest becomes beneficially entitled to those securities or that interest (and not, if different, the time when the securities are, or interest is, conveyed or transferred), and

(b)“employment” includes a former or prospective employment.

(3)A right or opportunity to acquire securities or an interest in securities made available by a person’s employer, or by a person connected with a person’s employer, is to be regarded for the purposes of subsection (1) as available by reason of an employment of that person unless—

(a)the person by whom the right or opportunity is made available is an individual, and

(b)the right or opportunity is made available in the normal course of the domestic, family or personal relationships of that person.

(4)Chapters 2 to [F54A] cease to apply to securities, or an interest in securities, when subsection (5), (6) or (7) is satisfied.

(5)This subsection is satisfied immediately after the securities are, or the interest in securities is, disposed of otherwise than to an associated person.

(6)This subsection is satisfied immediately before the death of the employee.

(7)This subsection is satisfied 7 years after the first date after the acquisition on which the employee is an employee of none of the following—

(a)the employer,

(b)(if the securities are, or the interest in securities is an interest in, securities issued by a company) the company by which they are issued, or

(c)a person connected with a person within paragraph (a) or (b).

(8)In this Chapter and Chapters 2 to [F64A] —

• “the acquisition”, in relation to employment-related securities, means the acquisition of the employment-related securities pursuant to the right or opportunity available by reason of the employment,

• “the employment”, in relation to employment-related securities, means the employment by reason of which the right or opportunity to acquire the employment-related securities is available (“the employee” and “the employer” being construed accordingly unless otherwise indicated), and

• “employment-related securities” means securities or an interest in securities to which Chapters 2 to 4 apply (ignoring any provision of any of those Chapters which limits the application of the Chapter to a particular description or descriptions of employment-related securities).

421CAssociated personsU.K.

(1)For the purposes of this Chapter and Chapters 2 to 4 the following are “associated persons” in relation to employment-related securities—

(a)the person who acquired the employment-related securities on the acquisition,

(b)(if different) the employee, and

(c)any relevant linked person.

(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 on the acquisition or the employee (on the other),

[F7are or have been connected or (without being or having been connected) are or have been] 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,

(b)the person from whom the employment-related securities were acquired,

(c)the person by whom the right or opportunity to acquire the employment-related securities was made available, or

(d)the person by whom the employment-related securities (or the securities in which they are an interest) were issued.

421DReplacement and additional securities and changes in interestsU.K.

(1)Subsections (2) and (3) apply where an associated person is entitled to employment-related securities (the “original securities”) and either—

(a)as a result of the conversion of the original securities (or the securities in which they are an interest), or of any other transaction or series of transactions, that person ceases to be entitled to the original securities but that person or another associated person acquires securities or an interest in securities (the “replacement securities”), or

(b)by virtue of that person being entitled to the original securities, that person or another associated person acquires other securities or an interest in other securities (the “additional securities”).

(2)The replacement securities or the additional securities are to be regarded for the purposes of section 421B(1) (securities acquired pursuant to a right or opportunity available by reason of an employment) as acquired pursuant to the same right or opportunity as the original securities.

(3)Where the market value of the original securities is reduced by reason of the issue of, or of securities including, the replacement securities or the additional securities (or the securities in which they are an interest), the amount of that reduction is to be treated for the purposes of Chapters 2 and 3 as consideration or additional consideration given for the acquisition of the replacement securities or the additional securities [F8and for the purposes of Chapter 3C as a payment made for their acquisition at or before the time of the acquisition].

(4)Subsections (2) and (3) apply whether or not the replacement securities, or the additional securities, were acquired for consideration [F9or a payment was made for their acquisition at or before the time of the acquisition].

(5)Where Chapters 2 to [F104A] apply to an interest in securities, an increase of that interest is to be treated for the purposes of section 421B(1) (securities acquired pursuant to a right or opportunity available by reason of an employment) as a separate interest acquired pursuant to the same right or opportunity as the original interest.

(6)Where Chapters 2 to [F114A] apply to an interest in securities, a reduction of that interest (otherwise than by a disposal to an associated person) is to be treated for the purposes of those Chapters as the disposal otherwise than to an associated person of a separate interest proportionate to the reduction.

F12421EExclusions: residence etcU.K.

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421FExclusions: public offersU.K.

(1)[F13Chapters 2, 3 and 3C] do not apply in relation to employment-related securities that are shares acquired under the terms of an offer to the public or an interest in shares so acquired.

[F14(1A)But subsection (1) does not disapply those Chapters if the main purpose (or one of the main purposes)—

(a)of the arrangements under which the right or opportunity under which the shares were acquired, or

(b)for which the shares are held,

is the avoidance of tax or national insurance contributions.]

(2)In a case within subsection (1) of section 544 (exemption for priority share allocations where offer to employees separate from public offer), any acquisition made under the terms of either the public offer or the employee offer within the meaning of that subsection is to be treated for the purposes of this section as made under the terms of an offer to the public.

(3)Subsection (2) applies whether or not there is any benefit within section 544(2) (benefit derived from entitlement to priority allocation exempt from income tax).

F15421GExclusions: approved plan or scheme securitiesU.K.

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421HMeaning of “employee-controlled” etcU.K.

(1)For the purposes of Chapters 2 to 4 a company is “employee-controlled” by virtue of shares of a class if—

(a)the majority of the company’s shares of that class (other than any held by or for the benefit of an associated company) are held by or for the benefit of employees of the company or a company controlled by the company, and

(b)those employees are together able as holders of the shares to control the company.

In this subsection “employee” includes a person who is to be or has been an employee.

(2)In this section and Chapters 2 to 4 “associated company” has the [F16meaning given by section 449 of CTA 2010].

421IConsideration for acquisition of employment-related securitiesU.K.

(1)This section applies for determining for the purposes of Chapters 2 to 3A the amount of the consideration given for the acquisition of employment-related securities.

(2)References to consideration given for the acquisition of the employment-related securities are to consideration given by—

(a)the employee, or

(b)(if not the employee) the person by whom the employment-related securities were acquired.

(3)The amount of the consideration given by a person for the acquisition of the employment-related securities includes the amount of any consideration given for a right to acquire the employment-related securities.

(4)If the right to acquire the employment-related securities (“the new option”) is the whole or part of the consideration for the assignment or release of another right to acquire them (“the old option”), the amount of the consideration given for 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 old option exceeds the amount of any consideration for the assignment or release of the old option, apart from the new option, and

(b)any valuable consideration given for the new option, apart from the old option.

(5)Two or more transactions are to be treated for the purposes of subsection (4) as a single transaction by which a right to acquire the employment-related securities is assigned for a consideration which consists of or includes another right to acquire the employment-related securities if—

(a)the transactions result in a person ceasing to hold a right to acquire the employment-related securities and that person or a connected person coming to hold another right to acquire them, and

(b)one or more of the transactions is effected under arrangements to which two or more persons who hold rights to acquire the employment-related securities, in respect of which there may be a liability to tax under Chapter 5 of this Part (securities options), are parties.

(6)Subsection (5) applies regardless of the order in which the assignment and the acquisition occur.

(7)In this section “release”, in relation to a right to acquire the employment-related securities, includes agreeing to the restriction of the exercise of the right.]