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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: associated person and 'the box'

The term “associated person” is used throughout the legislation. Any person who acquires a security by reason of another’s employment is associated with the employee for these purposes, as is any other person connected with either that person or the employee. That group of people can be thought of as within a “box”.

Disposal outside the ‘box’

Various chargeable events can occur when disposing of the securities. The aim of the Part 7 legislation is to impose a charge when the securities are sold outside the box to a genuine third party. Hence the disposal charges are phrased along the lines of “disposal otherwise than to another associated person”. Of course, the employee is also an “associated person”.

Once the securities have been disposed of outside the “box” (at which point a charge will generally have arisen) they cease to be within the provisions of Chapters 2 to 4A (subsection (5) of ITEPA03/S421B).

Associated person

The definition of “associated person” is set out in ITEPA03/S421C as:

  • the person who acquired the employment-related securities on the acquisition,
  • (if different) the employee, and
  • any relevant linked person.

Relevant linked person (from 18 June 2004)

A person is a “relevant linked person” if-

  • that person (on the one hand), and
  • either the person who acquired the employment-related securities on the acquisition or the employee (on the other),

are or have been connected or (without being or having been connected) are or have been members of the same household (see ITEPA03/S421C (2)).

The broad coverage of “household” is intended to include modern personal relationships beyond the traditional family within marriage.

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Relevant linked person (before 18 June 2004)

Before 18 June 2004, a person is a “relevant linked person” if:

  • that person (on the one hand), and
  • either the person who acquired the employment-related securities on the acquisition or the employee (on the other),

are connected or, although not connected, are members of the same household.

The difference is that the earlier definition was in the present tense. The wording was taken advantage of in avoidance schemes. Under the new wording: once a person is a relevant linked person, he/she will always be a relevant linked person.

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Exception for employing company

A company which would otherwise be a relevant linked person is not one, per ITEPA03/S421C (3), if it is-

  • the employer,
  • the person from whom the employment-related securities were acquired,
  • the person by whom the right or opportunity to acquire the employment-related securities was made available, or
  • the person by whom the employment-related securities (or the securities in which they are an interest) were issued.

So, if the employer buys back the securities that will be a disposal to a non-associated person for tax purposes and a tax charge may therefore arise.

ITEPA03/S472 makes similar provision regarding associated persons and relevant linked persons for the securities options rules in Chapter 5 of Part 7.