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HMRC internal manual

Employment Related Securities Manual

From
HM Revenue & Customs
Updated
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International from 6 April 2015: remittance - from 6 April 2015: examples of ‘brought to, or received or used in, the United Kingdom’

  1. Where foreign employment-related shares are sold by the employee and the cash paid into the employee’s UK bank account, that cash derives from the shares and has been ‘brought to the United Kingdom by and for the benefit of the employee’ - a relevant person (as defined by ITA07/S809M).
  2. Where the employee acquires shares in a UK company, the shares are UK assets and therefore they are ‘used in the United Kingdom by and for the benefit of the employee’.

And those shares, share options etc, or any cash derived from them, must either be the chargeable foreign securities income, or must derive (wholly or in part, directly or indirectly) from the chargeable foreign securities income.

For employment-related securities, 41F helps to determine whether or not money or property is derived from the chargeable foreign securities income.

ITEPA03/S41F says:

(8) For the purposes of Chapter A1 of Part 14 of ITA 2007 (remittance basis) treat the relevant securities or securities option as deriving from the chargeable foreign securities income.

(9) But where—

(a) the chargeable event is the disposal of the relevant securities or the assignment or release of the relevant securities option, and

(b) the individual receives consideration for the disposal, assignment or release of an amount equal to or exceeding the market value of the relevant securities or securities option,

for the purposes of that Chapter treat the consideration (and not the relevant securities or securities option) as deriving from the chargeable foreign securities income.

(11) In this section and section 41G -

“the chargeable event” means the event giving rise to the securities income, and

“the relevant securities” or “the relevant securities option” means the employment-related securities or employment-related securities option by virtue of which the amount mentioned in subsection 1(a) counts as employment income.

These three subsections combined provide that, where an amount counts as employment income by virtue of Chapters 2 to 5 of Part 7 ITEPA 2003, then

  • the employment-related securities, or employment-related securities option, by virtue of which that amount counts as employment income, are to be treated as deriving from any chargeable foreign securities income which arises under ITEPA03/S41H, unless
  • the chargeable event giving rise to the chargeable foreign securities income is the disposal of the securities, or the assignment or release of the option, and the individual receives consideration for that disposal, assignment or release of an amount equal to or exceeding the market value of the securities or option. In which case, the consideration is treated as derived from the chargeable foreign securities income. The securities/option are not treated as derived from the securities income.

The reason for this is to create a statutory link between the property (shares/option etc), where it is still in the hands of the employee and the chargeable foreign securities income determined by virtue of that property. However, where the property is no longer in the hands of the employee as a result of a disposal, assignment or release at arm’s length (ie for consideration of market value or more), then the necessary statutory link is not between the chargeable foreign securities income and the property itself, but between the chargeable foreign securities income and the consideration.

UK-situs shares

As mentioned, where an employee acquires shares in a UK company, the shares are UK assets and therefore they are ‘used in the United Kingdom by and for the benefit of the employee’. This means that any chargeable foreign securities income arising in respect of shares in a UK company will, by definition, be remitted to the UK at the time of the chargeable event.