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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Employment-related securities: income tax charges before FA03

TCGA92/S120

The legislation relating to employment-related shares and securities was consolidated into ITPA03. ITEPA03 was then the subject of significant amendment by FA03 including an extension to the range of assets brought within the scope of the legislation.

If shares or other securities were held in 2003, it is possible that income tax charges may have arisen under the pre-FA03 legislation. TCGA92/S120 operates in the same way as TCGA92/S119A, see CG56328, to increase the acquisition cost of the asset by the amount of certain specified income tax charges. The two sections are mutually exclusive and cannot both give rise to a deduction for an amount chargeable to income tax on the same event.

The specified income tax charges are outlined briefly below.

  • An increase in the value of shares after they are acquired; Sections 77-89 FA88. (From 6 April 2003 Chapter 4 Part 7 ITEPA03 replaces these sections. The new provisions apply to specific ‘chargeable events’ following the acquisition of securities whenever acquired.)
  • Income gains on the exercise of share options; ICTA88/S135 (1) or ICTA88/S135 (6). (From 6 April 2003 S476, Chapter 5 Part 7 ITEPA03 replaces these sections). These provisions apply to shares acquired on the exercise of an option before 1 September 2003.
  • Discharge of notional loan on shares; ICTA88/S162(5)(From 6 April 2003 S195 ITEPA03 replaced ICTA88/S162(5)) This provision applies to shares acquired before 16 April 2003.
  • Risk of forfeiture lifted from or disposal of shares previously subject to such a risk; ICTA88/S140A (From 6 April 2003 S427 Chapter 2 Part 7 ITEPA03).

These provisions apply to shares acquired before 16 April 2003 whenever the risk of forfeiture is lifted or the shares are disposed of. They also apply to shares acquired after 15 April 2003 but before the 1 September 2003 when the risk of forfeiture is lifted before 1 September 2003.

  • Conversion of shares of one class to shares of a different class, ICTA88/S140D (from 6 April 2003 S438 Chapter 3 Part 7 ITEPA03.) This provision applies to conversions before 1 September 2003.

Depending on what income charges have arisen since the asset was acquired it is possible that its acquisition cost may be increased under both S120 and S119A.