(1) This section applies for determining whether any money or money’s worth is a “capital receipt” for the purposes of section 501.
(2) The general rule is that any money or money’s worth is a “capital receipt” for the purposes of section 501.
(3) The general rule is subject to the following exceptions.
(4) Money or money’s worth is not a capital receipt for the purposes of section 501 to the extent that—
(a) it constitutes income in the hands of the recipient for the purposes of income tax or would do so but for sections 489 to 498 (SIPs: tax advantages) or section 770 of ITTOIA 2005 (exemption for amounts applied by SIP trustees acquiring dividend shares or retained for reinvestment),
(b) it consists of the proceeds of disposal of the plan shares mentioned in section 501, or
(c) it consists of new shares within the meaning of paragraph 87 of Schedule 2 (company reconstructions).
(5) If, as a result of a direction given by or on behalf of the participant for the purposes of paragraph 77 of Schedule 2 (power of trustees to raise funds to subscribe for rights issues), the trustees—
(a) dispose of some of the rights under a rights issue, and
(b) use the proceeds of that disposal to exercise other such rights,
the money or money’s worth constituting the proceeds of that disposal is not a capital receipt for the purposes of section 501.
503 Charge on partnership share money paid over to employee
(1) Any amount paid over to an individual under any of the provisions of Schedule 2 mentioned in subsection (2) counts as employment income of the individual for the relevant tax year.
(2) The provisions are—
paragraph 46(5) (deductions in excess of permitted maximum amount),
paragraph 50(5)(b) or paragraph 52(6)(b) (surplus partnership share money remaining after acquisition of shares),
paragraph 52(7) (partnership share money paid over on individual ceasing to be in relevant employment),
paragraph 52(8) (partnership share money paid over where accumulation period brought to an end by event specified in plan),
paragraph 55(3) (partnership share money paid over on withdrawal from partnership share agreement), or
paragraph 56 (partnership share money paid over on plan ceasing to be a Schedule 2 SIP or termination of plan).
(3) The “relevant tax year” is the tax year in which the amount is paid over.
504 Charge on cancellation payments in respect of partnership share agreement
(1) This section applies if an individual who has entered into a partnership share agreement receives any money or money’s worth in respect of the cancellation of the agreement.
(2) The amount of the money or the value of the money’s worth counts as employment income of the individual for the relevant tax year.
(3) The “relevant tax year” is the tax year in which the individual receives the money or money’s worth.
505 Charge on free or matching shares ceasing to be subject to plan
(1) When free or matching shares cease to be subject to the plan, there may be an amount that counts as employment income of the participant depending on the period that has elapsed between—
(a) the date when the shares were awarded to the participant (“the award date”), and
(b) the date when they cease to be subject to the plan (“the exit date”).
(2) If the period is less than 3 years, the market value of the shares at the exit date counts as employment income of the participant for the relevant tax year (see subsection (5)).
(3) If the period is 3 years or more but less than 5 years, whichever is the lesser of—
(a) the market value of the shares at the award date, and
(b) the market value of the shares at the exit date,
counts as employment income of the participant for the relevant tax year (see subsection (5)).
(4) Where—
(a) subsection (3) applies, and
(b) the applicable amount is the market value of the shares at the award date,
the tax due is reduced by the amount or aggregate amount of any tax paid by virtue of section 501 (charge on capital receipts in respect of plan shares) on any capital receipts in respect of the shares.
(4A) Any tax due under subsection (2) or (3) is reduced by the amount or aggregate amount of any tax paid by virtue of Chapter 3B of this Part in relation to the shares.
(5) The “relevant tax year” is the tax year in which the exit date falls.
(6) No liability to tax arises by virtue of this section—
(a) on the forfeiture of free or matching shares,
(b) if section 498 (no charge on shares ceasing to be subject to plan in certain circumstances) applies, or
(c) if section 507 (charge on disposal of beneficial interest in holding period) applies.
506 Charge on partnership shares ceasing to be subject to plan
(1) When partnership shares cease to be subject to the plan, there may be an amount that counts as employment income of the participant depending on the period that has elapsed between—
(a) the acquisition date in respect of those shares (as defined by paragraph 50(4) or, as the case may be, paragraph 52(5) of Schedule 2), and
(b) the date when they cease to be subject to the plan (“the exit date”).
(2) If the period is less than 3 years, the relevant amount counts as employment income of the participant for the relevant tax year (see subsection (5)).
(2A) Subject to subsection (2B), in subsection (2) “the relevant amount” means the market value of the shares at the exit date.
(2B) If the shares cease to be subject to the plan by virtue of a provision of the kind mentioned in paragraph 43(2B) of Schedule 2 (provision requiring partnership shares to be offered for sale), in subsection (2) “the relevant amount” means the lesser of—
(a) the amount of partnership share money used to acquire the shares, and
(b) the market value of the shares at the time they are offered for sale.
(2C) Paragraph 92(2) of Schedule 2 (market value of shares subject to a restriction) applies for the purposes of subsection (2B)(b).
(3) If the period is 3 years or more but less than 5 years, whichever is the lesser of—
(a) the amount of partnership share money used to acquire the shares, and
(b) the market value of the shares at the exit date,
counts as employment income of the participant for the relevant tax year (see subsection (5)).
(3A) If the shares cease to be subject to the plan by virtue of a provision of the kind mentioned in paragraph 43(2B) of Schedule 2, in subsection (3)(b) the reference to the market value of the shares at the exit date is to be read as a reference to the market value of the shares at the time they are offered for sale (as determined in accordance with paragraph 92(2) of Schedule 2 if relevant).
(4) Where—
(a) subsection (3) applies, and
(b) the applicable amount is the amount of partnership share money used to acquire the shares,
the tax due is reduced by the amount or aggregate amount of any tax paid by virtue of section 501 (charge on capital receipts in respect of plan shares) on any capital receipts in respect of the shares.
(4A) Any tax due under subsection (2) or (3) is reduced by the amount or aggregate amount of any tax paid by virtue of Chapter 3B of this Part in relation to the shares.
(5) The “relevant tax year” is the tax year in which the exit date falls.
(6) No liability to income tax arises by virtue of this section if section 498 (no charge on shares ceasing to be subject to plan in certain circumstances) applies.
507 Charge on disposal of beneficial interest during holding period
(1) This section applies if—
(a) free or matching shares cease to be subject to the plan at any time during the holding period for those shares, and
(b) this occurs as a result of the participant assigning, charging or otherwise disposing of the participant’s beneficial interest in the shares in breach of obligations under paragraph 36(1)(b) of Schedule 2 (restrictions relating to disposals within holding period).
(2) The market value of the shares at the date when they cease to be subject to the plan counts as employment income of the participant for the relevant tax year.
(3) The “relevant tax year” is the tax year in which that date falls.
508 Identification of shares ceasing to be subject to plan
(1) For the purpose of determining any liability to tax arising by virtue of the SIP code in respect of any of a participant’s shares ceasing to be subject to the plan—
(a) shares are to be taken as ceasing to be subject to the plan in the order in which they were awarded to the participant under the plan, and
(b) where shares are awarded to the participant on the same day, the shares are to be treated as ceasing to be subject to the plan in the order which gives rise to the lowest charge to income tax on the participant.
(2) For the purposes of subsection (1) dividend shares are “awarded” to a participant when the trustees acquire them on behalf of, or appropriate them to, the participant.
509 Modification of section 696 where charge on shares ceasing to be subject to plan
(1) Where—
(a) as a result of shares ceasing to be subject to a Schedule 2 SIP, there is an amount that counts as employment income of a participant by virtue of the SIP code, and
(b) the shares are readily convertible assets,
section 696 (readily convertible assets) applies as follows.
(2) Section 696 applies as if the participant (“P”) were being provided with PAYE income in the form of those shares—
(a) at the time when the shares cease to be subject to the plan, and
(b) in respect of the relevant employment in which P is employed at that time (or, if P is not then employed in relevant employment, the relevant employment in which P was last employed before that time).
(3) In addition, subsection (2) of section 696 applies as if the reference in that subsection to the amount of income likely to be PAYE income in respect of the provision of the asset were a reference to the amount which is likely to count as employment income by virtue of the SIP code as a result of the shares ceasing to be subject to the plan.
(4) In this section “readily convertible asset” has the same meaning as in section 696 (see sections 701 and 702), but this is subject to subsections (5) and (6).
(5) In determining for the purposes of this section (and of section 696 in its application in accordance with this section) whether the shares are readily convertible assets, any market for the shares which—
(a) is created by virtue of the trustees acquiring shares for the purposes of the plan, and
(b) exists solely for the purposes of the plan,
is to be disregarded.
(6) In determining for the purposes of this section (and of section 696 in its application in accordance with this section) whether the shares are readily convertible assets, section 702 has effect with the omission of subsections (5A) to (5D).
510 Payments by trustees to employer company on shares ceasing to be subject to plan
(1) This section applies if, as a result of any shares (“the relevant shares”) ceasing to be subject to a Schedule 2 SIP—
(a) there is an amount that counts as employment income of a participant by virtue of the SIP code, and
(b) an obligation to make a PAYE deduction arises in respect of that amount.
(2) The trustees must pay to the employer company a sum which is sufficient to enable the employer company to discharge that obligation.
(3) Subsection (2) is subject to—
(a) subsection (4), and
(b) section 511 (PAYE deductions to be made by trustees on shares ceasing to be subject to plan).
(4) Subsection (2) only applies if, or to the extent that, the plan does not require the participant to pay the employer company a sum which is sufficient to discharge the obligation mentioned in subsection (1)(b).
(5) Section 710(1) (notional payments: accounting for tax) has effect as if it required the deduction of income tax to be made from any sum or sums received by the employer company—
(a) from the trustees under subsection (2), or
(b) from the participant in accordance with a requirement of the plan, as mentioned in subsection (4).
(6) After making the necessary PAYE deduction from the sum or sums received as mentioned in subsection (5), the employer company must pay any remaining amount to the participant.
(7) In this section “the employer company” means—
(a) the company which employs the participant in relevant employment at the time when the relevant shares cease to be subject to the plan, or
(b) if the participant is not then employed in relevant employment, the company which last employed the participant in relevant employment before that time,
so long as that company is one to which PAYE regulations apply at that time.
511 PAYE deductions to be made by trustees on shares ceasing to be subject to plan
(1) This section applies if, as a result of any shares ceasing to be subject to a Schedule 2 SIP—
(a) there is an amount that counts as employment income of a participant by virtue of the SIP code, and
(b) condition A or B is met.
(2) Condition A is that an officer of Revenue and Customs —
(a) is of the opinion that it is impracticable for the employer company (within the meaning of section 510) to make a PAYE deduction, and
(b) accordingly directs that this section is to apply.
(3) Condition B is that there is no company that qualifies as the employer company (within the meaning of that section).
(4) If this section applies—
(a) section 510(2) does not apply, and
(b) the trustees must make a PAYE deduction in respect of the taxable equivalent as if the participant were a former employee of the trustees.
(5) The “taxable equivalent” means an amount equal to that mentioned in subsection (1).
(6) If this section applies, section 689 (employee of non-UK employer) does not apply.
512 Disposal of beneficial interest by participant
(1) This section applies if—
(a) a participant (“P”) disposes of P’s beneficial interest in any of P’s plan shares to the trustees, and
(b) the trustees are, as a result of paragraph 6 of Schedule 7D to TCGA 1992 (deemed disposal by trustees on disposal of beneficial interest), treated as having disposed of the shares in question.
(2) If this section applies, sections 510 and 511 apply as if the consideration payable by the trustees to the participant on the disposal had been received by the trustees as the proceeds of disposal of plan shares.
513 Capital receipts: payments by trustees to employer company
(1) This section applies if the trustees receive a sum of money which constitutes (or forms part of) a capital receipt which, by virtue of the SIP code, counts as employment income of a participant when it is received by the participant.
(2) Out of that sum of money the trustees must pay to the employer company an amount equal to the amount of employment income.
(3) The employer company must then pay over that amount to the participant, but when doing so must make a PAYE deduction.
(4) This section is subject to section 514 (capital receipts: deductions to be made by trustees).
(5) In this section “the employer company” means—
(a) the company which employs the participant in relevant employment at the time when the trustees receive the sum mentioned in subsection (1), or
(b) if the participant is not then employed in relevant employment, the company which last employed the participant in relevant employment before that time,
so long as that company is one to which PAYE regulations apply at that time.
514 Capital receipts: PAYE deductions to be made by trustees
(1) This section applies if—
(a) the trustees receive a sum of money which constitutes (or forms part of) a capital receipt which, by virtue of the SIP code, counts as employment income of a participant when it is received by the participant, and
(b) either condition A or B is met.
(2) Condition A is that an officer of Revenue and Customs —
(a) is of the opinion that it is impracticable for the employer company (within the meaning of section 513) to make a PAYE deduction, and
(b) accordingly directs that this section is to apply.
(3) Condition B is that there is no company that qualifies as the employer company (within the meaning of that section).
(4) If this section applies, the trustees must, when paying the capital receipt over to the participant, make a PAYE deduction in respect of the taxable equivalent as if the participant were a former employee of the trustees.
(5) The “taxable equivalent” means an amount equal to the amount which counts as employment income as mentioned in subsection (1)(a).
(6) If this section applies, section 689 (employee of non-UK employer) does not apply.
(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) SIPs are also dealt with in—
(a) Part 1 of Schedule 7D to TCGA 1992 (which provides for relief from capital gains tax for the trustees and for participants in relation to a Schedule 2 SIP in certain circumstances, including where shares cease to be subject to the plan), ...
(b) section 95 of FA 2001 (which contains relief from stamp duty and stamp duty reserve tax for transfers of partnership or dividend shares) , ...
(c) sections 392 to 395 and 405 to 408 of ITTOIA 2005 (SIPs: special rules for charges under Chapters 3 and 4 of Part 4 of that Act (dividends etc. from UK or non-UK resident companies etc.)) and section 770 of that Act (exemption for amounts applied by SIP trustees acquiring dividend shares or retained for reinvestment), ...
(d) Chapter 5 of Part 9 of ITA 2007 (which provides for section 479 of that Act not to apply to income of the trustees of a Schedule 2 SIP in certain circumstances), and
(e) Chapter 1 of Part 11 of CTA 2009 (share incentive plans)
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) This Chapter provides—
(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) for exemptions from income tax in connection with share options granted under SAYE option schemes which are Schedule 3 SAYE option schemes.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) The provisions of—
(a) this and the following sections of this Chapter,
(b) Schedule 3, and
(c) Part 2 of Schedule 7D to TCGA 1992 (Schedule 3 SAYE option schemes: amount of consideration on exercise of option),
together constitute “the SAYE code”.
(4) In the SAYE code—
...
“SAYE option scheme” means a scheme (commonly referred to as an SAYE share option scheme) which is established by a company and provides—
for share options to be granted to employees and directors, and
for the shares acquired by the exercise of the share options to be paid for in the way mentioned in paragraph 24 of Schedule 3 (payments for shares to be linked to approved savings arrangements);
“Schedule 3 SAYE option scheme” is to be read in accordance with paragraph 1 and Part 8 of Schedule 3;
“share option” means a right to acquire shares in a company;
“shares” includes stock.
(5) Other expressions used in the SAYE code and contained in the index at the end of Schedule 3 have the meaning indicated by the index.
(1) This Chapter applies to a share option granted to an individual—
(a) in accordance with the provisions of a Schedule 3 SAYE option scheme, and
(b) by reason of the individual’s office or employment as a director or employee of a company.
(2) The individual may be a director or employee of the company whose shares are the subject of the share option, or of some other company.
(1) No liability to income tax arises in respect of the exercise of the share option if—
(a) the individual exercises it in accordance with the provisions of the SAYE option scheme at a time when the scheme is a Schedule 3 SAYE option scheme, ...
(b) condition A or B is met and
(c) the avoidance of tax or national insurance contributions is not the main purpose (or one of the main purposes) of any arrangements under which the option was granted or is exercised.
(2) Condition A is that the option is exercised on or after the third anniversary of the date on which it was granted.
(3) Condition B is that the option—
(a) is exercised before the third anniversary of the date on which it was granted, and
(b) is so exercised otherwise than by virtue of a provision included in the scheme under—
paragraph 34(5) of Schedule 3 (exercise of option where scheme-related employment ends), or
paragraph 37 of that Schedule (exercise of option where certain company events occur).
(3A) In relation to any shares acquired by the exercise of the share option, no liability to income tax arises in respect of its exercise if—
(a) the individual exercises the option before the third anniversary of the date on which the option was granted at a time when the SAYE option scheme is a Schedule 3 SAYE option scheme,
(b) the option is exercised by virtue of a provision included in the scheme—
(i) under paragraph 37(1) of Schedule 3 where the relevant date is the relevant date for the purposes of paragraph 37(2), (4) or (4A), or
(ii) under paragraph 37(6) of Schedule 3,
(c) as a result of, as the case may be—
(i) the general offer,
(ii) the compromise or arrangement, ...
(iia) the non-UK company reorganisation arrangement, or
(iii) the takeover offer,
the individual receives cash (and no other assets) in exchange for the shares,
(d) when the decision to grant the option was taken—
(i) the general offer,
(ii) the compromise or arrangement, ...
(iia) the non-UK company reorganisation arrangement, or
(iii) the takeover offer,
as the case may be, had not been made,
(e) when that decision was taken, no arrangements were in place or under consideration for—
(i) the making of a general offer which would fall within subsection (3D),
(ii) the making of any compromise or arrangement which would fall within subsection (3H), ...
(iia) the making of any non-UK company reorganisation arrangement which would fall within subsection (3H), or
(iii) the making of a takeover offer (as defined in section 974 of the Companies Act 2006) which would fall within subsection (3I),
(f) if the scheme includes a provision under paragraph 38 of Schedule 3 (“the paragraph 38 provision”), in connection with—
(i) the general offer,
(ii) the compromise or arrangement, ...
(iia) the non-UK company reorganisation arrangement, or
(iii) the takeover offer,
as the case may be, no course of action was open to the individual which, had it been followed, would have resulted in the individual making an agreement under the paragraph 38 provision which would have prevented the individual from acquiring the shares by the exercise of the option, and
(g) the avoidance of tax or national insurance contributions is not the main purpose (or one of the main purposes) of any arrangements under which the option was granted or is exercised.
(3B) In subsection (3A)(c)(iii), (d)(iii) and (f)(iii) “the takeover offer” means the takeover offer (as defined in section 974 of the Companies Act 2006) giving rise to the application of sections 979 to 982 or 983 to 985 of that Act.
(3C) In subsection (3A)(e) “arrangements” includes any plan, scheme, agreement or understanding, whether or not legally enforceable.
(3D) A general offer falls within this subsection if it is—
(a) a general offer to acquire the whole of the issued ordinary share capital of the relevant company which is made on a condition such that, if it is met, the person making the offer will have control of the relevant company, or
(b) a general offer to acquire all the shares in the relevant company which are of the same class as those acquired by the exercise of the option.
(3E) In subsection (3D)(a) the reference to the issued ordinary share capital of the relevant company does not include any capital already held by the person making the offer or a person connected with that person and in subsection (3D)(b) the reference to the shares in the relevant company does not include any shares already held by the person making the offer or a person connected with that person.
(3F) For the purposes of subsection (3D)(a) and (b) it does not matter if the general offer is made to different shareholders by different means.
(3G) For the purposes of subsection (3D)(a) a person is to be treated as obtaining control of a company if that person and others acting in concert together obtain control of it.
(3H) A compromise or arrangement or a non-UK company reorganisation arrangement falls within this subsection if it is applicable to or affects—
(a) all the ordinary share capital of the relevant company or all the shares of the same class as those acquired by the exercise of the option, or
(b) all the shares, or all the shares of that same class, which are held by a class of shareholders identified otherwise than by reference to their employment or directorships or their participation in a Schedule 3 SAYE option scheme.
(3I) A takeover offer falls within this subsection if—
(a) it relates to the relevant company, and
(b) where there is more than one class of share in the relevant company, the class or classes to which it relates is or include the class of the shares acquired by the exercise of the option.
(3J) In subsections (3D), (3H) and (3I) “the relevant company” means the company whose shares are acquired by the exercise of the option.
(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) In Schedule 3—
(a) paragraph 32 provides for the exercise of an option where the holder has died, and
(b) paragraphs 40H(4) and 40I(9) provide for an SAYE option scheme to be treated as a Schedule 3 SAYE option scheme at the time when an option is exercised even though the scheme is not a Schedule 3 SAYE option scheme.
(1) This Chapter provides—
(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) for exemptions from income tax in connection with share options granted under CSOP schemes which are Schedule 4 CSOP schemes, and
(c) for amounts to count as employment income in certain circumstances in connection with such options.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) The provisions of—
(a) this and the following sections of this Chapter,
(b) Schedule 4, and
(c) Part 3 of Schedule 7D to TCGA 1992 (Schedule 4 CSOP schemes: amount of consideration on exercise of option),
together constitute “the CSOP code”.
(4) In the CSOP code—
...
“CSOP scheme” means a scheme (commonly referred to as a company share option plan) which—
is established by a company,
provides for share options to be granted to employees and directors, and
is not an SAYE option scheme (within the meaning of the SAYE code: see section 516(4));
“Schedule 4 CSOP scheme” is to be read in accordance with paragraph 1 and Part 7 of Schedule 4;
“share option” means a right to acquire shares in a company;
“shares” includes stock.
(5) Other expressions used in the CSOP code and contained in the index at the end of Schedule 4 have the meaning indicated by the index.
(1) This Chapter applies to a share option granted to an individual—
(a) in accordance with the provisions of a Schedule 4 CSOP scheme, and
(b) by reason of the individual’s office or employment as a director or employee of a company.
(2) The individual may be a director or employee of the company whose shares are the subject of the share option, or of some other company.
(1) No liability to income tax arises in respect of the exercise of the share option if—
(a) the individual exercises it in accordance with the provisions of the CSOP scheme at a time when the scheme is a Schedule 4 CSOP scheme, ...
(b) Condition A or B is met and
(c) the avoidance of tax or national insurance contributions is not the main purpose (or one of the main purposes) of any arrangements under which the option was granted or is exercised.
(2) Condition A is that the option is exercised—
(a) on or after the third anniversary of the date on which it was granted, but
(b) not later than the tenth anniversary of that date.
(2A) Condition B is that the option—
(a) is exercised before the third anniversary of the date on which it was granted, and
(b) is so exercised by virtue of a provision included in the scheme under paragraph 24 of Schedule 4 (exercise of options after ceasing to be director or employee) in circumstances in which subsection (2B) applies.
(2B) This subsection applies if the individual exercising the option—
(a) has ceased to be in qualifying employment because of—
(i) injury, disability, redundancy or retirement,
(ii) a relevant transfer within the meaning of the Transfer of Undertakings (Protection of Employment) Regulations 2006, or
(iii) in the case of a group scheme where the qualifying employment is as a director or employee of a constituent company, that company ceasing to be controlled by the scheme organiser, and
(b) exercises the option within 6 months of the day on which he ceases to be such a director or employee.
(2BA) For the purposes of subsection (2B) an individual is in “qualifying employment” if the individual is a full-time director or qualifying employee (as defined in paragraph 8(2) of Schedule 4) of—
(a) the scheme organiser, or
(b) in the case of a group scheme, a constituent company.
(2C) In subsection (2B)(a)(i) —
“redundancy” means redundancy within the meaning of ERA 1996 or ER(NI)O 1996,
...
(2D) Subsection (2B)(a)(iii) does not cover a case where the constituent company was controlled by the scheme organiser by virtue of paragraph 34 of Schedule 4 (jointly owned companies).
(2E) In relation to any shares acquired by the exercise of the share option, no liability to income tax arises in respect of its exercise if—
(a) the individual exercises the option before the third anniversary of the date on which the option was granted at a time when the CSOP scheme is a Schedule 4 CSOP scheme,
(b) the option is exercised by virtue of a provision included in the scheme under paragraph 25A of Schedule 4,
(c) as a result of, as the case may be—
(i) the general offer,
(ii) the compromise or arrangement, ...
(iia) the non-UK company reorganisation arrangement, or
(iii) the takeover offer,
the individual receives cash (and no other assets) in exchange for the shares,
(d) when the decision to grant the option was taken—
(i) the general offer,
(ii) the compromise or arrangement, ...
(iia) the non-UK company reorganisation arrangement, or
(iii) the takeover offer,
as the case may be, had not been made,
(e) when that decision was taken, no arrangements were in place or under consideration for—
(i) the making of a general offer which would fall within subsection (2H),
(ii) the making of any compromise or arrangement which would fall within subsection (2L), ...
(iia) the making of any non-UK company reorganisation arrangement which would fall within subsection (2L), or
(iii) the making of a takeover offer (as defined in section 974 of the Companies Act 2006) which would fall within subsection (2M),
(f) if the scheme includes a provision under paragraph 26 of Schedule 4 (“the paragraph 26 provision”), in connection with—
(i) the general offer,
(ii) the compromise or arrangement, ...
(iia) the non-UK company reorganisation arrangement, or
(iii) the takeover offer,
as the case may be, no course of action was open to the individual which, had it been followed, would have resulted in the individual making an agreement under the paragraph 26 provision which would have prevented the individual from acquiring the shares by the exercise of the option, and
(g) the avoidance of tax or national insurance contributions is not the main purpose (or one of the main purposes) of any arrangements under which the option was granted or is exercised.
(2F) In subsection (2E)(c)(iii), (d)(iii) and (f)(iii) “the takeover offer” means the takeover offer (as defined in section 974 of the Companies Act 2006) giving rise to the application of sections 979 to 982 or 983 to 985 of that Act.
(2G) In subsection (2E)(e) “arrangements” includes any plan, scheme, agreement or understanding, whether or not legally enforceable.
(2H) A general offer falls within this subsection if it is—
(a) a general offer to acquire the whole of the issued ordinary share capital of the relevant company which is made on a condition such that, if it is met, the person making the offer will have control of the relevant company, or
(b) a general offer to acquire all the shares in the relevant company which are of the same class as those acquired by the exercise of the option.
(2I) In subsection (2H)(a) the reference to the issued ordinary share capital of the relevant company does not include any capital already held by the person making the offer or a person connected with that person and in subsection (2H)(b) the reference to the shares in the relevant company does not include any shares already held by the person making the offer or a person connected with that person.
(2J) For the purposes of subsection (2H)(a) and (b) it does not matter if the general offer is made to different shareholders by different means.
(2K) For the purposes of subsection (2H)(a) a person is to be treated as obtaining control of a company if that person and others acting in concert together obtain control of it.
(2L) A compromise or arrangement or a non-UK company reorganisation arrangement falls within this subsection if it is applicable to or affects—
(a) all the ordinary share capital of the relevant company or all the shares of the same class as those acquired by the exercise of the option, or
(b) all the shares, or all the shares of that same class, which are held by a class of shareholders identified otherwise than by reference to their employment or directorships or their participation in a Schedule 4 CSOP scheme.
(2M) A takeover offer falls within this subsection if—
(a) it relates to the relevant company, and
(b) where there is more than one class of share in the relevant company, the class or classes to which it relates is or include the class of the shares acquired by the exercise of the option.
(2N) In subsections (2H), (2L) and (2M) “the relevant company” means the company whose shares are acquired by the exercise of the option.
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Paragraph 25 of Schedule 4 provides for the exercise of an option where the holder has died.
(1) This section applies if, at the time when the share option is granted to the individual, the aggregate of—
(a) the amount or value of any consideration given by the individual for the grant of the option, and
(b) the amount payable by the individual, on exercising the option, in order to acquire the maximum number of shares that may be acquired under it,
is less than the market value of the same quantity of issued shares of the same class.
(2) The amount of the difference counts as employment income of the individual for the relevant tax year.
(3) The “relevant tax year” is the tax year in which the option is granted to the individual.
(4) Section 480(4) (gain realised on acquisition of securities pursuant to option etc) provides for a deduction to be made to take account of amounts that count as employment income under this section.
527 Enterprise management incentives: qualifying options
(1) This Chapter provides—
(a) for share options notified to an officer of Revenue and Customs to be qualifying options for the purposes of the EMI code, and
(b) for exemptions and reliefs from income tax in connection with qualifying options.
(2) Schedule 5 contains the requirements that have to be met for a share option to be a qualifying option, together with the notification procedure.
(3) The provisions of—
(a) this and the following sections of this Chapter, and
(b) Schedule 5, ...
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
together constitute “the EMI code”.
(4) In the EMI code—
“qualifying option” means a share option—
in relation to which the requirements of Schedule 5 are met at the time when the option is granted, and
which is notified to an officer of Revenue and Customs in accordance with Part 7 of that Schedule;
“replacement option” means an option within paragraph 41(4) of that Schedule (grant of replacement option in connection with company reorganisations);
“share option” means a right to acquire shares in a company;
and any reference to the requirements of Schedule 5 is to the requirements set out in paragraph 1(3) of that Schedule.
(5) Other expressions used in the EMI code and contained in the index at the end of Schedule 5 have the meaning indicated by the index.
529 Scope of tax advantages: option must be exercised by the specified anniversary
(1) Sections 530 to 540 apply in connection with the exercise of a qualifying option.
(2) But those sections only apply in cases where the option is exercised on or before the specified anniversary of—
(a) the date of the grant of the option, or
(b) if it is a replacement option, the date of the grant of the original option.
(2A) In this section, “specified anniversary” means—
(a) in cases where the employer company is a specified Northern Ireland company, the tenth anniversary, and
(b) otherwise, the fifteenth anniversary.
(3) In the EMI code “the original option” means—
(a) where there has been one replacement option, the option that that option replaced, or
(b) where there have been two or more replacement options, the option that the first of them replaced.
530 No charge on exercise of option to acquire shares at market value
(1) This section applies if the option is to acquire shares at not less than their market value—
(a) at the time when the option is granted, or
(b) if it is a replacement option, at the time when the original option was granted.
(2) If this section applies, no liability to income tax arises by virtue of section 476 (charge on exercise etc. of option by employee) in respect of the exercise of the option.
(3) This section has effect subject to section 532 (modified tax consequences following disqualifying events).
531 Limitation of charge on exercise of option to acquire shares below market value
(1) This section applies if the option is to acquire shares at less than their market value—
(a) at the time when the option is granted, or
(b) if it is a replacement option, at the time when the original option was granted,
or at nil cost.
(2) If this section applies, the section 476 gain is—
CMV
-
(
ACO
+
ACS
)
where—
CMV is the chargeable market value,
ACO is the amount or value of the consideration given for the grant of the option, and
ACS is the amount, if any, for which the shares are acquired.
(3) “The chargeable market value” means—
(a) the market value of the shares—
(i) at the time when the option was granted, or
(ii) if it is a replacement option, at the time when the original option was granted, or
(b) the market value of the shares at the time when the option is exercised,
whichever is lower.
(3A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) In this section “the section 476 gain” means the amount under section 478 (amount of charge under section 476) is to be regarded as the taxable amount for the purposes of section 476 in respect of the acquisition of the shares pursuant to the option.
(5) This section has effect subject to section 532 (modified tax consequences following disqualifying events).
532 Modified tax consequences following disqualifying events
(1) This section applies where—
(a) a disqualifying event (see section 533) occurs in relation to a qualifying option before the option is exercised, and
(b) the option is exercised later than 90 days after the day on which the event occurred.
(2) If the option is within section 530(1) (option to acquire shares at market value), the section 476 gain is—
PEG
-
ACO
(see subsection (4)).
(3) If the option is within section 531(1) (option to acquire shares at less than market value), the section 476 gain is—
(
CMV
+
PEG
)
-
(
ACO
+
ACS
)
(see subsection (4)).
(4) For the purposes of subsections (2) and (3)—
ACO is the amount or value of the consideration given for the grant of the option,
ACS is the amount, if any, for which the shares are acquired,
CMV is the chargeable market value (as defined by section 531(3)), and
PEG is the post-event gain, that is the amount (if any) by which the market value of the shares at the time when the option is exercised exceeds their market value immediately before the disqualifying event.
(4A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) In subsections (2) and (3) “the section 476 gain” means the amount under section 478 (amount of charge under section 476) is to be regarded as the taxable amount for the purposes of section 476 in respect of the acquisition of the shares pursuant to the option.
(6) Nothing in the following provisions—
(a) subsections (2) and (3) above, or
(b) sections 530 and 531,
applies if the amount that counts as employment income by virtue of section 476 in respect of the exercise of the option would, in the absence of those provisions, be less than the amount that counts as such income as a result of those provisions.
(1) The following provisions deal with the events that are (or are to be treated as) disqualifying events in relation to a qualifying option—
(a) section 534 (events relating to the relevant company),
(b) section 535 (events relating to the employee), and
(c) section 536 (other disqualifying events), read with sections 537 to 539 (which contain supplementary provisions).
(2) In the provisions mentioned in subsection (1) “the employee” means the person holding the qualifying option and “the relevant company” means the company whose shares are the subject of the option (see paragraph 1(3) of Schedule 5).
534 Disqualifying events relating to relevant company
(1) The following events relating to the relevant company are disqualifying events in relation to a qualifying option—
(a) when the relevant company becomes a 51% subsidiary of another company;
(b) when the relevant company comes under the control of—
(i) another company, or
(ii) another company and any other person connected with that other company,
without becoming a 51% subsidiary of that other company;
(c) when the relevant company ceases to meet the trading activities requirement (see paragraphs 13 to 23 of Schedule 5).
(2) But where a replacement option has been granted, an event within subsection (1)(a) or (b) is not a disqualifying event in relation to the old option (see paragraph 41(2) of Schedule 5) if the event occurs at any time during the period—
(a) beginning at the same time as the period within which the replacement option had to be granted (see paragraph 42 of Schedule 5), and
(b) ending with the release of the rights under the old option.
(3) A disqualifying event is to be treated as occurring in relation to a qualifying option if the circumstances mentioned in subsection (4) arise.
(4) The circumstances are that—
(a) the relevant company was a qualifying company at the time when the option was granted as a result only of preparations to carry on a qualifying trade; and
(b) either—
(i) the preparations cease to be carried on, or
(ii) the initial period comes to an end,
without the relevant company (or, if it is a parent company, any member of the group) beginning to carry on that qualifying trade.
(5) “The initial period” means the period of two years after the date when the option was granted.
(6) Paragraph 41(5)(b) of Schedule 5 has the effect that a replacement option is to be treated as granted on the date when the original option was granted.
(7) Subsection (1)(a) and (b) do not apply where the relevant company is subject to an employee-ownership trust (within the meaning of paragraph 27(4) to (6) of Schedule 2).
(1) The following events relating to the employee are disqualifying events in relation to a qualifying option—
(a) when the employee ceases to be an eligible employee in relation to the relevant company as a result of ceasing to meet the requirement in paragraph 25 of Schedule 5 (the employment requirement);
(b) when the employee ceases to be such an employee as a result of ceasing to meet the requirement in paragraph 26 of that Schedule (the requirement as to commitment of working time).
(2) In addition, a disqualifying event is to be treated as occurring in relation to a qualifying option at the end of any tax year if, during that year, the average amount per week of the employee’s reckonable time in relevant employment was less than the statutory threshold.
(3) An employee’s “reckonable time in relevant employment” means the time which the employee in fact spent, as an employee in relevant employment—
(a) on the business of the relevant company, or
(b) if that company is a parent company, on the business of the group,
together with any time which the employee would, as such an employee, have spent on that business but for any of the reasons set out in paragraph 26(3)(a) to (d) of Schedule 5 (requirement as to commitment of working time).
(4) The “statutory threshold” means—
(a) 25 hours, or
(b) if less, 75% of the employee’s working time.
(5) For the purpose of applying subsection (2) to the tax year in which the option was granted, any part of that year which preceded the date on which it was granted is to be disregarded in calculating the average amount mentioned in that subsection.
(6) In this section—
(a) “relevant employment” means employment—
(i) by the relevant company, or
(ii) if that company is a parent company, by any member of the group;
(b) “working time” has the meaning given by paragraph 27 of Schedule 5 (meaning of “working time”).
(1) The following are also disqualifying events in relation to a qualifying option—
(a) any variation of the terms of the option whose effect is either—
(i) to increase the market value of the shares that are the subject of the option, or
(ii) that the requirements of Schedule 5 would no longer be met in relation to the option;
(b) any alteration to the share capital of the relevant company—
(i) to which subsection (2) (share values affected by alteration of rights or restrictions) of section 537 applies, and
(ii) whose effect is that the requirements of Schedule 5 would no longer be met in relation to the option;
(c) any alteration to the share capital of the relevant company to which—
(i) subsection (2) (share values affected by alteration of rights or restrictions), and
(ii) subsection (3) (alteration designed to increase share values),
of section 537 apply;
(d) a conversion of any of the shares to which the option relates into shares of a different class, except in a case within section 538(2); and
(e) 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 £250,000 .
(2) In subsection (1)(e)—
“relevant CSOP option”, and
“employee option”,
have the meaning given by section 539 (CSOP and other options relevant for purposes of this section); and sub-paragraphs (6) to (8) of paragraph 5 of Schedule 5 (determination of value of shares) apply for the purposes of subsection (1)(e) as they apply for the purposes of paragraph 5.
537 Alterations of share capital for purposes of section 536
(1) This section has effect for the purposes of section 536(1)(b) and (c) (other disqualifying events: alterations of share capital of relevant company).
(2) This subsection applies to an alteration of the share capital of the relevant company if—
(a) the alteration affects (or but for the occurrence of some other event would affect) the value of the shares to which the option relates; and
(b) it consists of or includes—
(i) the creation, variation or removal of a right relating to any shares in the relevant company,
(ii) the imposition of a restriction relating to any such shares, or
(iii) the variation or removal of a restriction to which any such shares are subject.
(3) This subsection applies to an alteration of the share capital of the relevant company if the effect of the alteration is to increase the market value of the shares to which the option relates and either—
(a) it is not made by the relevant company for commercial reasons, or
(b) the main purpose (or one of the main purposes) for making it is to increase the market value of those shares.
(4) In this section any reference to—
(a) a restriction relating to shares or to which shares are subject, or
(b) a right relating to shares,
is a reference to such a restriction imposed or right conferred by any contract or arrangement or in any other way.
538 Share conversions excluded for purposes of section 536
(1) This section has effect for the purposes of section 536(1)(d) (other disqualifying events: share conversions).
(2) A conversion of shares is not a disqualifying event if—
(a) it is a conversion of shares of one class only (“the original class”) into shares of one other class only (“the new class”);
(b) all the shares of the original class are converted into shares of the new class; and
(c) one of the conditions in subsection (3) is met.
(3) The conditions are—
(a) that immediately before the conversion the majority of the relevant company’s shares of the original class are held otherwise than by or for the benefit of—
(i) directors or employees of the relevant company,
(ii) an associated company of the relevant company, or
(iii) directors or employees of such an associated company;
(b) that immediately before the conversion the relevant company is employee-controlled as a result of holdings of shares of the original class.
(4) “associated company” has the meaning given by section 449 of CTA 2010,
“director” has the same meaning as in the benefits code (see section 67) but also includes a person who is to be or has been a director,
“employee” includes a person who is to be or has been an employee, and
“employee-controlled” has the same meaning as in Chapters 1 to 4 of this Part (see section 421H(1)).
539 CSOP and other options relevant for purposes of section 536
(1) This section has effect for the purposes of section 536(1)(e) (other disqualifying events: grant of CSOP option).
(2) A “relevant CSOP option” means a CSOP option granted to the employee by reason of the employee’s employment—
(a) with the employer company, or
(b) if it is a member of a group of companies, with any member of that group.
(3) A share option is an “employee option” if it is—
(a) the qualifying option mentioned in section 536(1), or
(b) another qualifying option granted to the employee by reason of the employee’s employment as mentioned in subsection (2)(a) or (b) above, or
(c) a relevant CSOP option.
(4) In this section a “CSOP option” means an option to acquire shares under a scheme which is a Schedule 4 CSOP scheme (see Schedule 4).
540 No charge on acquisition of shares as taxable benefit
(1) ... Chapter 3C of this Part (taxable benefits: notional loans in respect of acquisitions of shares) does not apply in relation to the acquisition of shares by the exercise of a qualifying option.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Nothing in the EMI code affects—
(a) the operation of Chapters 2 to 4 of this Part in relation to shares acquired under a qualifying option, or
(b) the operation of Chapter 5 of this Part otherwise than in relation to the acquisition of shares under a qualifying option.
(2) But in calculating the taxable amount for the purposes of section 426 (post-acquisition charge on restricted securities) in respect of shares acquired under a qualifying option, the amount of relief on the exercise of the option is to be regarded as a deductible amount for the purposes of section 428 (amount of charge).
(3) “The amount of relief on the exercise of the option” means the difference between—
(a) the amount that would have counted as employment income by virtue of section 476 in respect of the exercise of the option apart from the EMI code, and
(b) the amount (if any) that in fact counts as such income in accordance with the EMI code.