CG56339 - Employment-related securities: employee: employment income: restricted securities

Throughout this manual, all legislative references are to the Taxation of Chargeable Gains Act 1992 (TCGA 1992) unless otherwise stated.

S149AA of the Taxation of Chargeable Gains Act 1992 (TCGA 1992)

TCGA92/S149AA prevents the market value rule applying to the acquisition of restricted employment-related securities (including shares subject to the risk of forfeiture). See CG56321. The acquisition cost for capital gains purposes is instead built up from the actual cost and amounts chargeable to Income Tax. For the definition of restricted securities see Chapter 2 Part 7  Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003).

Sections 430 and 431 ITEPA 2003 permit the employer and employee to elect to ignore restrictions on employment-related securities. The effect of such an election is that any (further) appreciation in the value does not give rise to an amount counting as employment income and is included instead in the computation of a capital gain accruing on a disposal of the security. 

The capital gains acquisition cost of restricted employment-related securities (including shares subject to the risk of forfeiture) acquired on or after 1 September 2003 is, by S149AA TCGA 1992

  • their actual cost at the date of acquisition together with
  • any amount which constituted earnings in respect of their acquisition under s62 ITEPA 2003 (for disposals after 11 March 2008 exempt income is ignored. For disposals after 5 April 2015 earnings which were not charged to UK tax, but which would have been exempt if they had been, are also ignored) and
  • amounts counting as income under Chapter 2 Part 7 ITEPA 2003 on or before the disposal. See S119A TCGA 1992 and CG56328.

See the examples at CG56340 and CG56341.

In the case of shares which on acquisition became employee shareholder shares (see CG56705P) the consideration for the acquisition is (subject to the operation of s119A) equal to the amount that constituted earnings under s62 or s226A ITEP 2003 and no other consideration is treated as having been given for the acquisition of the shares.

For shares or securities acquired before 1 September 2003 the starting point for the acquisition cost is the market value subject to restrictions and there is no addition for an amount constituting employment income under S62 ITEPA 2003 or S19 Income and Corporation Taxes Act 1988. Finanace Act 2003 transitional provisions may apply in relation to acquisitions in 2003.

The capital gains acquisition cost of restricted shares (other than shares subject to the risk of forfeiture, see CG56349) acquired before 16 April 2003 is

  • the market value subject to the restrictions at the date of acquisition together with
  • any amount chargeable to Income Tax under Sections 77-89 FA88, on an increase in the value of shares after they are acquired and on or before the disposal. (From 6 April 2003 Chapter 4 Part 7 ITEPA 2003 replaces Sections 77-89 FA88.) See 120 TCGA 1992, S119A TCGA 1992, and CG56328-9.

The capital gains acquisition cost of restricted employment-related securities (other than shares subject to the risk of forfeiture, see CG56349) acquired before 1 September 2003 but after 15 April 2003 is

  • the market value subject to the restrictions at the date of acquisition together with
  • any amount counting as income on or before the disposal under Chapter 2 Part 7 ITEPA 2003 on or after the 1 September 2003. See S119A TCGA 1992.