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HMRC internal manual

Employment Related Securities Manual

International from 6 April 2015: just and reasonable override - from 6 April 2015: example 1 - HMRC-favour adjustment for “wrong” relevant period

Fred is awarded free forfeitable shares on 1 September 2015. ITEPA03/S425 provides that there is no income tax liability at the time of the award as the shares cease to be forfeitable within 5 years of acquisition.

The forfeiture condition lifts on 30 September 2015 when the shares are worth £50,000, so £50,000 counts as employment income under ITEPA03/S426.

However, Fred is not resident in the UK throughout this period and his duties for the period from 1 September to 30 September were performed entirely outside the UK.

Under ITEPA03/S41G(2), the ‘relevant period’ for forfeitable shares begins with the day of the acquisition and ends with the day of the chargeable event. Therefore the relevant period is 1 September to 30 September 2015. As Fred’s duties were entirely foreign during the period, all of the securities income is unchargeable foreign securities income and would, on the basis of ITEPA03/S41H, not be taxed in the UK.

On examination of the facts, it is clear that the shares were awarded to Fred in recognition of his duties over the twelve months prior to 1 September 2015. In that period, Fred was resident in the UK and all of his duties were performed in the UK. The just and reasonable override would take effect to treat none of the £50,000 securities income as foreign.

The whole £50,000 would therefore be taxable specific income for 2015/16 under ITEPA03/S41F(3).