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HMRC internal manual

Employment Related Securities Manual

Interaction of UK law and treaties - from 6 April 2015: chapter 5B and time apportionment - example 1

Denise is a French citizen who works in the UK for the UK subsidiary of a French group for 2 years from 1 July 2013 to 30 June 2015. Before her arrival in the UK she receives a grant of an option over shares on 1 December 2011 in respect of her employment with the group. This vests on 30 November 2014 while she is in the UK but she doesn’t get round to exercising her option until 3 months after leaving the UK (October 2015) when she is back in France. She sells her shares immediately upon exercising the option.

The relevant period runs from the date of acquisition of the option - 1 December 2011 - to the vesting date - 30 November 2014. For 2011/12 and 2012/13 Denise is not resident in the UK and the period from 6 April 2013 to 30 June 2013 is the overseas part of a split-year, so more than one of the international mobility conditions is met. The exercise of the option, gives rise to a chargeable event and an amount counts as employment income under Chapter 5 of Part 7 of ITEPA for 2015/16. All of Denise’s duties during the year of non-residence and the overseas part of the split year within the relevant period are performed wholly outside the UK, so that the securities income treated as accruing in that years and that overseas part is unchargeable foreign securities income.

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 5 of Part 7 of ITEPA 2003 under Article 15 on the basis of workdays between grant and vest - in this case it appears that, of the 36-month period between grant and vest, 17 months was spent in the UK. In the circumstances of this case, the operation of the apportionment rules of Chapter 5B is likely to mirror the double taxation treaty time apportionment rules. If so, no treaty time apportionment would be needed.