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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Employment-related securities: employer: restricted securities: retained rights

Where the employing company issues its own new shares, there will be no capital gains consequences for the employer as an issue of shares by a company is not a disposal of those shares. However, there will be a disposal by the employer where shares or securities in another company are transferred by it to the employee.

Where there is a disposal by the employer and rights are retained over the shares or other securities, the disposal is a part disposal. The ordinary rules for part disposals will apply, see CG12730+. The value of the retained rights should be taken as the full market value of the unrestricted asset less the value attributed to the interest disposed of. TCGA92/S149B and TCGA92/S149AA do not change the tax consequences for the employer.

The company’s retained rights are wasting assets, whose predictable life is the period over which the restriction operates, see CG76700. At the end of the period there is a final disposal for no consideration, see CG15740. No allowable loss will arise, as the cost will have wasted in full.

If the restrictions operate and, after a part disposal, the shares or other securities are reacquired by the employer, the new cost of the shares or other securities to the employer will be the residue of the wasted cost, together with anything more the employer paid for the shares on reacquisition.