Employment-related securities and options: scope of legislation
Part 7 of ITEPA 2003 contains special rules about cases where:
- interests in securities, or
- securities options
are acquired in connection with an employment (ITEPA03/S417) (see ERSM20110)
Other related provisions deal with:
- the charge on “money’s worth” received (Chapter 1 Part 3 ITEPA 2003), see ERSM20500
- residual liability to charge (Chapter 10 Part 3 ITEPA 2003 and ITEPA03/S418)
- employment income provided through third parties (Part 7A ITEPA 2003).
Specific employment income
All the charges in Part 7 ITEPA constitute “specific employment income”, per ITEPA03/S6 (1) & ITEPA03/S7 (4). The hierarchy of terminology is set out in Chapter 2 as follows:
- Tax is chargeable on employment income which consists of “general earnings” and“ specific employment income” - ITEPA03/S6 (1)
- General earnings include “money’s worth” charge on acquisition of securities - ITEPA03/S62 (2)(b) - see ERSM20500.
- General earnings are subject to residence and domicile rules in Chapter 4 and 5 Part 2 ITEPA.
- Specific employment income includes all charges within Chapters 1 to 5 of Part 7 ITEPA - ITEPA03/S7 (4) & (6).
- Specific employment income from Part 7 ITEPA is not subject to residence and domicile rules in Chapter 4 and 5 Part 2 ITEPA. Until 5 April 2015 it had its own rules on residence - see ERSM20300. From 6 April 2015, new residence and domicile rules in Chapter 5B Part 2 ITEPA broadly mirror the rules for general earnings in Chapters 4 and 5 of Part 2. See ERSM162000 onwards.
Grandfathering of older provisions
(Grandfathering allows for an exception from the new rules for pre-existing arrangements, despite a change in the rules applied to newer situations)
The following statutory provisions continue to be in force in particular circumstances:
- Conditional shares acquired pre-16 April 2003 continue to be subject to the original Chapter 2 Part 7 ITEPA.
- Notional loans created through shares being acquired for less than their market value before 16 April 2003 continue to be subject to Chapter 8 Part 3 ITEPA, rather than Chapter 3C Part 7.
- Restricted shares acquired before 16 April 2003 continue to be subject to ITEPA03/S449 et seq. as originally enacted and roll-over provisions continue to apply where there is a reorganisation of share capital affecting those shares (ITEPA03/S461 or ITEPA03/S462 as originally enacted).