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HMRC internal manual

Employment Related Securities Manual

From
HM Revenue & Customs
Updated
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CGT Interface

Acquisition costs of securities

Where an employee acquires shares in connection with his or her employment he or she usually has an acquisition cost made up of:

  • the open market value of the shares at the date of acquisition, and
  • certain additional amounts charged to Income Tax as employment income, see below.

Amounts which are charged to tax as employment income on the employee as a result of: -

  • ITEPA03/S426 - restricted securities including forfeitable securities,
  • ITEPA03/S438 and ITEPA03/S439 (3)(a) - convertible securities,
  • ITEPA03/S446U - discharge of notional loan,
  • ITEPA03/S476 - gains on exercise of share options,
  • ITEPA03/S447 – post acquisition benefit on securities,

can be added to the employee’s acquisition cost of the shares for Capital GainsTax purposes on the occasion of the first disposal of the shares after their acquisition (TCGA92/S119A).

Old legislation

Prior to 6 April 2003, amounts which are charged to tax as employment income on the employee as a result of the following provisions: -

  • FA88/S77 - FA88/S89 - increase in the value of shares after they are acquired,
  • ICTA88/S135 (1) or ICTA88/S135 (6) - gains on exercise of share options,
  • ICTA88/S162 (5) - discharge of notional loan on shares,
  • ICTA88/S140A - when the risk of forfeiture is lifted from shares previously subject to such a risk or on disposal of these shares,
  • ICTA88/S140D - on gain made on the conversion of convertible shares acquired on or after 17 March 1998,

can be added to the employees acquisition cost of the shares for Capital Gains Tax purposes on the occasion of the first disposal of the shares after their acquisition (TCGA92/S120).

For more guidance on these provisions, please see CG17200 et seq.