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HMRC internal manual

Employment Related Securities Manual

Interaction of UK law and treaties - up to 5 April 2015: remittance basis and time apportionment - example 1

Denise is a French citizen who works in the UK for 3 years from 1 July 2008 to 30 June 2011. Before her arrival in the UK she receives a grant of an option over shares on 1 June 2008 in respect of her forthcoming UK assignment. This vests on 30 November 2010 while she is in the UK but she doesn’t get round to exercising her option until 3 months after leaving the UK (October 2011) when she is back in France. She sells her shares immediately upon exercising the option.

Extra Statutory Concession A11 means that Denise is treated as not UK-resident in that part of 2008/09 when the option was acquired, so Chapter 5 does not apply. The option is a “legal option”, so that when the shares are acquired on the exercise of the option, they are not “money’s worth” general earnings (See ERSM70410). On exercise of the option, she has acquired securities for less than their market value and is liable to a charge under Chapter 3C of Part 7 of ITEPA, because, in the year of departure, the split year treatment of ESC A11 is not applied to the charge under that Chapter. (See ERSM70460). As the securities were acquired pursuant to a securities option, the relevant period is from grant to vest in accordance with ITEPA03/S41B(3)(a). (See ERSM160735.) If she was not ordinarily UK-resident for at least one of 2008/09, 2009/10 and 2010/11 then Denise may make a claim for the remittance basis to apply to the Chapter 3C income. If she was ordinarily UK resident throughout her time in the UK, then she will not be eligible to claim the remittance basis in respect of earnings (or specific employment income) from this employment and there will be no apportionment under Chapter 5A of Part 2 of ITEPA 2003.

As Denise was not resident in the UK when the chargeable event occurred, the French might also tax the gain. The UK has a Double Taxation Agreement with France so we would apportion the amount charged by Chapter 3C of Part 7 of ITEPA 2003 under Article 15 on the basis of workdays between grant and vest - in this case it appears that the period between grant and vest was spent almost wholly in the UK. Denise would have to demonstrate that duties were performed in France in the grant to vest period. In the circumstances of this case, the operation of the apportionment rules of Chapter 5A (if they applied) would mirror the double taxation treaty time apportionment rules. As the UK would only seek to tax the amount of the option gain that relates to UK work, any amount that the new remittance basis rules sought to subject to a UK tax charge on the remittance basis would be excluded by treaty time apportionment.

For the application of this and the other examples to periods from 6 April 2013, see ERSM161335.