Employment-related securities: employee: employment income: restricted securities: example
The effect of the ITEPA03 rules and S149AA TCGA92 can be to create a larger loss for Capital Gains Tax purposes than would otherwise be the case.
Y receives 1000 shares in his employing company. Their initial actual market value was agreed at 70pps and the unrestricted market value was £1ps. He did not sign an election.
When the restriction is lifted the shares’ market value is now only 60pps - less than when Y received them.
- The amount which constitutes earnings of Y on acquisition is based on 70% of the unrestricted market value (70% of £1 is 70p),
- when the restrictions are removed the amount which counts as income of Y is 30% of whatever the market value is at that time (30% of 60p= 18p)
So, if Y immediately sells the shares for 60p per share, the difference between the market value on acquisition, £700, and the sale proceeds is £100. But overall Y has employment income £880 and there is an allowable capital loss £280:
|Amount paid to employer||£0|
|Amount that constituted earnings on acquisition||£700|
|Amount counting as income, see S119A TCGA and S426 ITEPA03||£180||£880|