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HMRC internal manual

Capital Gains Manual

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:

Sale Proceeds   £600
Amount paid to employer £0  
Amount that constituted earnings on acquisition £700  
Amount counting as income, see S119A TCGA and S426 ITEPA03 £180 £880
Allowable loss   £(280)