Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Business Income Manual

From
HM Revenue & Customs
Updated
, see all updates

Specific deductions: employee share schemes: providing shares to employees: qualifying shares: convertible shares: examples

Example A - convertible securities which convert into qualifying shares

Facts

1/4/2007 Employee is given £1000 loan stock, with interest at 4%, which can be converted into 1000 £1 ordinary shares after 5 years  
     
  Market value of loan stock with conversion rights £1200
  Market value of loan stock without conversion rights £1000
     
1/4/2012 Conversion takes place; market value of shares acquired £2500
  Market value of loan stock without conversion rights £1100
  No consideration given by employee to convert into shares  

Employment Income Tax charges

2006/07 Income Tax charged on £1000
     
2011/12 Income Tax charged on £2500 - £1100 = £1400

Deductions for employing company

a.p.e 31/12/07 No deduction (the Income Tax charge relates to acquisitions of loan stock, not qualifying shares)  
     
a.p.e 31/12/12 Deduction £1400

Example B - qualifying shares which convert into other qualifying shares

Facts

1/4/2009 Employee is given 1000 convertible qualifying shares  
     
  Market value of shares with conversion rights is £1100
  Market value of shares without conversion rights is £1000
     
1/4/2012 Conversion takes place; market value of new shares is £2400
  Market value of old shares without conversion rights is £2000
  Consideration given by employee to convert shares £100

Employment Income Tax charges

2008/09 Income Tax charged on £1000
     
2011/12 Income Tax charged on £2400 - £2000 - £100 = £300

Deductions for employing company

a.p.e 31/12/09 Deduction £1000
     
a.p.e 31/12/12 Deduction £300

Example C - qualifying shares which convert into non-qualifying shares

If the shares acquired on conversion in Example B were not qualifying shares, the Income Tax position would remain the same, but the deductions given to the employing company would be:

a.p.e 31/12/09 Deduction £1000
     
a.p.e 31/12/12 No deduction (the Income Tax charge relates to the acquisition of non-qualifying shares)