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HMRC internal manual

Employment Related Securities Manual

HM Revenue & Customs
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Restricted securities: definition of 'restriction' - forfeitable (or conditional) securities

For there to be a restriction under ITEPA03/S423 (2) there must be the possibility of a transfer, reversion or forfeiture of the securities, or the interest in them, whereby:

  • the holder of the securities or the interest in securities will cease to have any beneficial interest in them, and
  • that person will receive less than the market value that the securities would have had without the forfeiture condition.

For example, an employee may have acquired employment-related securities with the condition attached that on cessation of employment the shares have to be sold at less than their market value.

Forfeiture and receiving less than market value can include schemes for compulsory repurchase where a ‘fair value’ is offered. Such a fair value may be equal to, more than or less than market value in accordance with the TCGA92/S272. If there is a chance that less than market value will be received then the employee is not ‘entitled to ‘at least their market value’ (ITEPA03/S423 (2)(c)) and the securities fall to be treated as both restricted and forfeitable.