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HMRC internal manual

Business Income Manual

Specific deductions: employee share schemes: providing shares to employees: qualifying shares: restricted or convertible shares: introduction

Special rules apply if the employees acquire shares which are:

  • subject to certain restrictions (‘restricted shares’), or
  • convertible into other shares or securities (‘convertible shares’).

Exceptionally, special rules may still apply to shares acquired before 16 April 2003 which are subject to a risk of being forfeited (‘forfeitable shares’). Forfeitable shares acquired on or after that date fall within the category of restricted shares.

The special rules broadly align the timing and amount of deductions for the employer with the timing of amounts taxable on the employee as employment income in respect of:

  • the acquisition of the shares, and
  • subsequent post-acquisition events.

The special rules also apply if employees acquire qualifying shares on conversion of other shares or securities.

This section contains guidance on the following:

BIM44385 Restricted shares
BIM44390 Restricted shares: example
BIM44400 Convertible shares
BIM44405 Convertible shares: examples