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HMRC internal manual

Employment Related Securities Manual

HM Revenue & Customs
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Securities Options: charge on grant of long options - old rules

If an option to acquire shares (definition see below) was

  • granted before 1 September 2003,
  • granted in respect of a Case 1 employment, and
  • capable of being exercised more than ten years after the date it was granted

a charge to tax on employment income could arise on the grant of the option (under the general provisions that were found at ICTA88/S19 (1) and are now in Part 2 of ITEPA03) as in Abbott v Philbin (39TC82) - see ERSM110100.

Such an option is called a ‘long option’. For years up to 1997/98 the time span for a long option was seven years. It was increased to 10 years with effect from 6 April 1998.

The measure of the charge under ICTA88/S19 (1) was the value of the option on the date it is granted, less anything paid for the option. The value of an option was fixed by ICTA88/S135 (5)(b) as not less than the market value of the shares subject to the option on the date of grant less the price to be paid for the shares on exercise.

Definition of “shares”

Shares included stock (interest of any member in a company) and other securities as defined in ICTA88/S254 (1), but did not include Government gilts.

Charge on not ordinarily resident employees (non-Case 1 Schedule E)

ICTA88/S135 (5)(b) did not apply to non-Case 1 employees; and until 5 April 2008 they continued to be outside the provisions of Chapter 5 Part 7 ITEPA 2003. Such employees continued to be liable to a money’s worth charge on options granted at a discount to the then market value - see ERSM20500. Any subsequent acquisition of securities in pursuance of the option was chargeable under the provisions of Chapter 3C Part 7 ITEPA 2003.

From 6 April 2015, with the removal of the residence exclusion at ITEPA03/S474 (see ERSM20300), Chapter 5 can apply to securities options acquired whilst the employee is not resident in the UK and not carrying out duties in relation to a UK employment. See ERSM162000.