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HMRC internal manual

Employment Related Securities Manual

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HM Revenue & Customs
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CGT Interface

The market value rule

The general rule for capital gains tax purposes is that the consideration for the disposal of an asset is what the person who makes the disposal gets for it. The acquisition cost of the person who acquires the asset is the consideration which that person gave.

But in certain circumstances the consideration which passes between the parties to the transaction is ignored. Instead, the consideration is deemed to be equal to the market value at the date of disposal of the asset disposed of. The same figure is used as the acquisition cost of the person who acquires the asset (see CG14530).

The market value rule applies where employees acquire assets by virtue of their employment, including securities and securities options, in accordance with TCGA1992/S17(1)(b), unless this provision is displaced by other legislation.

Restricted securities

Where employees acquire employment related securities subject to restrictions on or after the 1 September 2003, the market value rule does not apply (TCGA92/149AA), unless the employer and employee elect to ignore all restrictions. Prior to 1 September 2003, where employees acquired shares in connection with their employment after 16 March 1998, which were subject to the risk of forfeiture, TCGA92/S149B prevented TCGA92/S17(1)(b) from applying. For more guidance on this, please see CG56357 and CG56358.

The acquisition cost to the employee in these circumstances is the total of

  • the actual consideration given and
  • any amount charged to tax under Chapter 2 (or Section 140A(4) ICTA for pre-1 September 2003) when the restrictions are lifted (see ERSM30250 et seq for guidance on the current legislation, and ERSM30210 for guidance on the earlier legislation)

Similarly for employee share options granted after 27 November 1995, TCGA92/S149A reduces the cost of the option to the amount the employee actually pays for the option.