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HMRC internal manual

Capital Gains Manual

Employment-related securities: securities options: employer's NIC or a Part 7A ITEPA03 charge

TCGA92/S119A (5)

Income Tax relief is given where the employee agrees with the employer to pay part or the whole of any employer’s National Insurance Contributions when the option is exercised This income tax relief will not reduce the amount allowable as an addition to the cost of the securities for capital gains purposes. Amounts that count as employment income of the employee under S476 ITEPA03 as a result of exercising the option (or previously ICTA88/S135) will still be allowable in full under s119A TCGA92.

In the example in CG56391, the employee may have agreed to pay any employer’s secondary NICs on the option income gain. Income tax relief would be given for the NICs paid but this would not affect the calculation of the acquisition cost of the shares for Capital Gains Tax purposes on subsequent disposals.

Similarly, a charge under Part7A ITPEA03 may have the effect of reducing a subsequent amount counting as income under s476 Chapter 5 Part 7 ITEPA03 on the exercise of an option. The full S476 amount before reduction remains allowable under S119A TCGA92.

If remittance basis applies to an amount thus falling within Part 7 or Part 7A, see CG25395.