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HMRC internal manual

Employment Related Securities Manual

Restricted Securities: Conditional shares acquired between 17 March 1998 and 15 April 2003: scope of legislation

Conditional shares are defined in the legislation at ITEPA03/S424 (as originally enacted).  They are more normally referred to as restricted shares subject to forfeiture, or simply forfeitable shares. Any reference to shares includes a reference to securities, but not the other way round (ITEPA03/S434 as originally enacted).

The definition of conditional shares in the legislation refers to shares which are subject to conditions that they may revert or be forfeit and as a result the person with the beneficial interest will cease to have any interest in the shares.


There are some important exceptions within the definition. The following shares are not forfeitable shares:

  • shares for which on transfer, reversion or forfeiture the holder of the beneficial interest will receive full market value (ITEPA03/S424 (1) as originally enacted),
  • unpaid or partly paid shares which may be forfeit for non-payment of calls (ITEPA03/S424 (2)(a) as originally enacted),
  • shares which under the Articles of Association must be offered for sale on leaving employment (ITEPA03/S424 (2)(b) as originally enacted),
  1. It was thought initially that this exemption applied only to shares in UK companies. Tax Bulletin 60 (TB60 published August 2002) outlined our change of view that this now extends to foreign companies with documents equivalent to an UK articles of association. TB60 gives detailed advice on dealing with transitional arrangements for taxpayers who followed our previous practice.
  2. We accept that the articles of association require the shares to be offered for sale or transfer even if this is at the discretion of the company to initiate or to waive.
  • shares which may be required to be sold or transferred if the employee ceases to be so employed as a result of misconduct (ITEPA03/S424 (2)(c) as originally enacted), and
  • redeemable securities (ITEPA03/S424 (2)(d) as originally enacted).