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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

HM Revenue & Customs
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Schedule 3 SAYE option schemes: Taxation: Post-acquisition income tax consequences - General

When a director or employee acquires shares by reason of his employment or the employment of any other person a liability to income tax may arise under:

  • Sections 62 ITEPA - shares acquired being ‘money’s worth’,
  • Chapter 3C - shares acquired for less than Market Value,
  • Chapter 5 - shares acquired by exercising share options.

Common to all of these provisions is that the amount chargeable is based on the value of the shares at the date of acquisition. There is therefore scope for minimising these tax liabilities by artificially reducing the share values at the relevant valuation dates. To limit the scope for manipulating share values legislation was enacted which may result in an income tax liability arising after the shares have been acquired by the employee or director. These provisions generally known as ‘post-acquisition’ charges are contained in Part 7 of ITEPA.

Guidance on this legislation can be found in the ERSM as follows:

Restricted Securities at ERSM30000.

Convertible securities at ERSM40000.

Artificially depressed MV at ERSM50000.

Artificially enhanced MV at ERSM60000.

Acquired for less than MV at ERSM70000.

Disposal for more than MV at ERSM80000.

Post-acquisition benefits at ERSM90000.

Securities options at ERSM110000.

The legislation is particularly targeted at increases in the values of shares which are caused by anything that is done that may affect the value of the securities concerned.