ERSM20170 - Employment-related securities and options: units in a collective investment scheme

The definition of security also includes units in a collective investment scheme (see ITEPA03/S420 (1) (e)). “Collective investment scheme” (defined in ITEPA03/S420 (2)) means an arrangement:

which is made with respect to property of any description, including money, and

the purpose or effect of which is to enable persons taking part in the arrangement (whether by becoming owners of the property or any part of it or otherwise) to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property or sums paid out of such profits or income.

For example, an interest or share in a partnership, limited partnership, or limited liability partnership holding investments will be a collective investment scheme. However, the legislation is predicated on the securities being employment-related - if there is no employment (or former or prospective employment - see ERSM20240) involved there can be no employment-related security.

If the interest in the collective investment scheme is a security, it could be argued that the employee has an interest in both that security and also an interest in the shares held by the collective investment scheme. We will not generally charge the same underlying securities at both levels and thereby impose double taxation. It will be necessary to consider the facts of each case to determine the appropriate level at which the interest should be taxed.

In the case of partnerships which are collective investment schemes the top level (the partnership level) will generally be the most appropriate level. However, where the partnership is investing in securities whose value is reduced by restrictions, the legislation on restricted shares in Chapter 2, Part 7 ITEPA 2003 will only operate by considering the restricted securities themselves, and in those cases the lower level will probably be more appropriate.