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HMRC internal manual

Employment Related Securities Manual

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HM Revenue & Customs
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Employment-related securities and options: warrants

Warrants, and other instruments entitling their holders to subscribe for securities (whether or not in existence or identifiable) are included in the definition of securities (see ITEPA03/S420 (1)(c)). Their use is not limited to employee remuneration arrangements and they may be held by ordinary investors and traded on stock exchanges.

However, whilst warrants and similar instruments are securities, they are also rights to acquire securities and so qualify as securities options. So ITEPA03/S420 (5)(e) takes warrants that are straightforward options to acquire securities back out of the meaning of securities for the purposes of the Part 7 rules - unless they were acquired (or, if acquired earlier, used) as part of an avoidance scheme on or after 2 December 2004 - see ERSM20200.

Warrants that are not simply rights to acquire securities, but carry additional rights, such as voting or dividend rights, remain within the definition of securities, and are not taken out of it by ITEPA03/S420 (5)(e).

On the facts of a particular case, it may be that a warrant is a security in respect of such additional rights and also contains a securities option, which can be regarded separately. In such a case the value of the option may be isolated and subject to the exemption on acquisition which applies to securities options (see ERSM110000).

You should seek advice from ESSU if the tax treatment of a warrant is in question.