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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Specific deductions: employee share schemes: providing shares to employees: qualifying shares: kind of shares acquired

S1008, S1016 Corporation Tax Act 2009

For shares to be ‘qualifying shares’ they must be:

  • ordinary shares, and
  • fully paid up, and
  • non-redeemable.

If the shares are not of a class listed on a recognised stock exchange they must also be in a company which:

  • is not under the control of another company; or
  • is under the control of a company whose shares are listed on a recognised stock exchange and which is not a close company (or would not be a close company if it were UK resident).

Shares acquired following a takeover

As these conditions must be satisfied at the time the employees acquire the shares, difficulties may arise if the employees are acquiring their shares (for example by exercising their share options) following a takeover of the company concerned by another unlisted company.

Typically the trigger for exercise of options on a takeover will be the time that a general offer becomes unconditional, in which case a takeover by an unlisted company will mean that the shares acquired by the employees will not be ‘qualifying shares’.

However, some schemes may be designed so that the takeover provisions take effect before a change of control, in which case the employees will acquire ‘qualifying shares’ before the company concerned becomes under the control of an unlisted company.

See BIM44300 for replacement share options following a takeover.