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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Employment-related securities: interaction with amounts charged to income tax

Employees may be liable to income tax if, for example, they acquire shares or securities by reason of their employment, whether directly or by way of exercising an option, free or for less than their market value. Other more complex arrangements may result in an employee receiving employment reward through, for example, an increase in value of shares or securities and amounts may be treated as income. For more detail see the Employment Related Securities Manual.

TCGA92/S119A identifies certain events which may result in an amount counting as employment income in relation to employment-related shares or securities. Subsequently, in calculating the chargeable gain on a disposal of the shares or securities, an amount which has counted as employment income may fall to be added to the amount of any consideration given for the shares or securities. The effect is thus to prevent the same value difference being charged to both income tax and capital gains tax. TCGA92/S120 applies similarly in relation to the events and income tax charges identified in that section. See CG56328 - CG56329 and TCGA92/S119A & TCGA92/S120. TCGA92/S119A and TCGA92/S120 are mutually exclusive. They cannot both give rise to a deduction for an amount chargeable to income tax on the same event.

A complication arises where the market value rule in TCGA92/S17 operates so that a person’s acquisition of an asset is deemed to be for a consideration equal to the market value of the asset, rather than the amount of the consideration given for the asset. In the light of legal advice we changed our view as to how TCGA92/S119A & TCGA92/S120 operate when the market value rule in TCGA92/S17 applies to the acquisition by an employee of shares or securities such that there is then also a liability to income tax. We announced our changed view in Revenue & Customs Brief 30/09 on 12 May 2009.

We received a number of questions regarding the practical implications of our new view following the publication of Revenue & Customs Brief 30/09 and addressed these in Revenue & Customs Brief 60/09, issued on 11 September 2009.

The Briefs are reproduced at CG56321B and CG56321C. There is an example illustrating how the amount charged to income tax may augment the consideration given for the shares or securities at CG56391.