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HMRC internal manual

Employment Related Securities Manual

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International: principles of the FA2008 rules - up to 5 April 2015

New rules for general earnings

The new rules relating to residence and domicile introduced by Finance Act 2008 bring all UK-resident individuals within the scope of ITEPA03/S15 with effect from 6 April 2008.

However, for those individuals who are not domiciled in the UK (non-dom) for a tax year, or, before 6 April 2013, are either non-dom or are not ordinarily resident in the UK (NOR) in a tax year, the remittance basis may apply for that tax year, either by a claim under ITA07/S809B, or by sections 809D or 809E.

Under the remittance basis, the chargeable overseas earnings of an individual who is non-dom for that year are charged in accordance with ITEPA03/S22 and the foreign earnings of an NOR individual (from 6 April 2013: an individual who meets the requirements of section 26A) are charged in accordance with ITEPA03/S26. Broadly speaking, sections 22 and 26 provide that those earnings are only subject to UK income tax if they are remitted to the UK. ITA07/S809L provides the rules on the meaning of ‘remitted’. (See ERSM161100 for guidance on the employment-related securities aspects of the new remittance rules.)

Application of Part 7 ITEPA to all UK residents

Prior to 6 April 2008, individuals who were resident but not ordinarily resident in the UK were subject to the provisions of Chapters 3A to 3D of Part 7 ITEPA, by virtue of ITEPA03/S421E(2). However, they were not subject to the provisions of Chapter 2, 3 or 4 of Part 7, because of ITEPA03/S421E(1). (See ERSM160200)

For example, when they acquired forfeitable shares, the rules in Chapter 2 of Part 7 did not apply to them so they were potentially subject to a general earnings charge at the time of acquisition. However, when the forfeiture restriction lifted, they were not subject to Chapter 2 so there was no specific employment income charge.

Because of the amendments made to ITEPA03/S421E by Finance Act 2008, for employment-related securities acquired on or after 6 April 2008 (except those acquired pursuant to a securities option acquired before 6 April 2008), all UK-resident individuals are within the scope of Chapters 2 to 4 of Part 7 ITEPA 2003.

Similarly for options, prior to 6 April 2008, individuals who were NOR were not subject to the provisions of Chapter 5 because of ITEPA03/S474(1).

Therefore when they acquired an option, the rules in Chapter 5 of Part 7 did not apply so they were potentially subject to a general earnings charge at the time of acquisition on the money’s worth of the option (see ERSM110110). When the option was exercised, again, the rules in Chapter 5 did not apply. However, the rules in Chapter 3C were often triggered so that the option gain was treated as a notional loan.

Because of the amendments made to section 474 by FA 2008, for employment-related securities options acquired on or after 6 April 2008, all UK resident individuals are within the scope of Chapter 5 of Part 7 ITEPA 2003.

Extended time limit for section 431 elections

Where restricted securities are acquired in the period 6 April to 31 July 2008 inclusive, and Chapter 2 of Part 7 of ITEPA applies to them by virtue only of the provisions of Schedule 7, then section 431 ITEPA elections may be made no later than 14 August 2008. The election means that employers and employees have the choice of opting out of Chapter 2 and the extension of the time limit ensures that people newly brought into the rules in Part 7 ITEPA have the opportunity to make section 431 elections after the new rules in Schedule 7 came into force when Finance Act 2008 received Royal Assent - on 21 July 2008.