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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

Company Share Option Plan (CSOP): 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 Income Tax (Earnings and Pensions) Act 2003  - 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. Prior to 16 April 2003 this was contained in:

  • From 16th April 2003 Finance Act 2003 consolidated legislation relating to Employment-Related Securities and these provisions were re-written into what is now Part 7 of Income Tax (Earnings and Pensions) Act 2003. Conditional shares are now referred to as “restricted securities” and the governing legislation can be found in the new Chapter 2, Convertible securities are now dealt with in Chapter 3 and Chapters 3A – 3D are anti-avoidance provisions. The “old” and “new” Chapter 4 deals with Post-Acquisition Benefits from securities. Whether the “old” or “new” Chapter 4 applies depends on the date of acquisition of the original securities, the “new” Chapter 4 only applying in respect of securities acquired on or after 16th April 2003.
  • These provisions impose what are known as “post-acquisition” charges, which are based on the increase in value of the shares after they have been acquired by directors or employees by reason of their employments.

Guidance on this legislation can be found in the Employment Related Securities Manual (ERSM) as follows:      


ERSM30000 Restricted securities
ERSM40000 Convertible securities
ERSM50000 Chapter 3A
ERSM60000 Chapter 3B
ERSM70000 Chapter 3C
ERSM80000 Chapter 3D
ERSM90000 Post-acquisition benefits (Chapter 4)
ERSM110000 Securities options (Chapter 5)   


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.