Finance Act 2003

69(1)After Part 4 insert—U.K.

“Part 4AU.K.Provisions applying in case of convertible shares

22AIntroduction

In the case of—

(a)an award of convertible shares, or

(b)the acquisition pursuant to an option of convertible shares,

the provisions of Part 2 or 3 have effect subject to the provisions of this Part of this Schedule.

22BMeaning of “convertible shares”

(1)Shares are “convertible shares” for the purposes of this Schedule if they are convertible securities, or an interest in convertible securities.

(2)But convertible securities which are not shares, or an interest in convertible securities which are not shares, are to be taken to be convertible shares for the purposes of this Schedule as it applies in relation to the reliefs given by paragraph 22C(6) and (7).

(3)In this paragraph “convertible securities” has the same meaning as in Chapter 3 of Part 7 of the Income Tax (Earnings and Pensions) Act 2003 (see section 436 of that Act).

22CAmount of relief in case of convertible shares

(1)Where the recipient acquires convertible shares, this paragraph applies in place of paragraph 8 or 15 (amount of relief).

(2)Relief is available—

(a)on the award of the shares or, where they are acquired pursuant to an option, on that acquisition,

(b)on any event that is a chargeable event in relation to the convertible shares,

(c)on the death of the employee.

(3)The amount of the relief on the award of the shares is equal to the amount that constitutes earnings from the employee’s employment under Chapter 1 of Part 3 of the Income Tax (Earnings and Pensions) Act 2003 (as modified by section 437 of that Act) in respect of the award.

(4)The amount of the relief on the acquisition of the shares pursuant to an option is equal to the amount that counts as employment income of the employee under section 476 of the Income Tax (Earnings and Pensions) Act 2003 (as modified by section 437 of that Act) in respect of the acquisition, increased by any amounts deducted under sections 481 and 482 of that Act.

(5)Where convertible shares acquired as mentioned in sub-paragraph (3) or (4) are also restricted shares, the total amount of the relief in respect of the acquisition is whichever is the greater of—

(a)in the case of an award of shares, the amounts mentioned in sub-paragraph (3) and paragraph 21(3), and

(b)in the case of an acquisition of shares pursuant to an option, the amounts mentioned in sub-paragraph (4) and paragraph 21(4).

(6)The amount of the relief on an event that is a chargeable event in relation to the convertible shares is equal to the amount that counts as employment income of the employee in respect of that event.

(7)The amount of the relief on the death of the employee is equal to the amount that would have counted as employment income of the employee in relation to the first event following the employee’s death which would have been a chargeable event were the employee still alive.

(8)Sections 446G and 446H of the Income Tax (Earnings and Pensions) Act 2003 are to be disregarded in determining the amounts of the reliefs given by sub-paragraphs (6) and (7).

(9)If the award or grant was made partly for the purposes of a business meeting the requirements of paragraph 3 (business must be within the charge to corporation tax) and partly for the purposes of a business in relation to which those requirements are not met, the amount of the relief shall be reduced to such extent as is just and reasonable.

(10)Where the employee—

(a)is not subject to a charge to income tax mentioned in sub-paragraph (3), (4) or (6), or would not be subject to the charge to income tax mentioned in sub-paragraph (7), but

(b)would be subject to such a charge if the conditions specified in paragraph 7(2) or 14(2) were met,

the amount of the relief is to be taken to be the amount that would be the amount of the relief if those conditions were met.

(11)In this paragraph and paragraph 22D “chargeable event” means an event that is a chargeable event in relation to the convertible shares within section 439(3)(a) of the Income Tax (Employment and Pensions) Act 2003; but a conversion of the convertible shares into anything other than shares which—

(a)meet the requirements of paragraph 4, and

(b)would meet the requirements of paragraph 6 if they had been acquired by an award of shares,

is not a chargeable event for the purposes of this paragraph.

22DTiming of relief in case of convertible shares

(1)Where the recipient acquires convertible shares, this paragraph applies in place of paragraph 10 or 17 (timing of relief).

(2)The relief mentioned in paragraph 22C(3) is given for the accounting period in which the recipient acquires the convertible shares under the award.

(3)The relief mentioned in paragraph 22C(4) is given for the accounting period in which the recipient acquires the convertible shares pursuant to the option.

(4)The time when shares are acquired is when the recipient acquires a beneficial interest in the shares and not, if different, the time the shares are conveyed or transferred.

(5)The relief mentioned in paragraph 22C(6) is given for the accounting period in which the chargeable event takes place.

(6)The relief mentioned in paragraph 22C(7) is given for the accounting period in which the event takes place which would have been a chargeable event but for the death of the employee.”.

(2)Sub-paragraph (1) has effect on and after the day appointed under paragraph 3(2) (so that, apart from paragraph 22C(2)(a) and (3) to (5) and paragraph 22D(2) to (4), the provisions of Part 4A of Schedule 23 as inserted by that sub-paragraph apply on and after that day in relation to convertible shares irrespective of the time of the acquisition).