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HMRC internal manual

Employment Related Securities Manual

Restricted securities: definition of 'restriction' - holding of securities

A restriction may relate to:

  • the ability to sell the securities,
  • the ability to retain the sale proceeds when they are sold,
  • the ability to retain the shares, or
  • any other rights conferred by the securities.

Common examples of restrictions that do not involve forfeiture (see ERSM30320) are restrictions on voting, restrictions on dividends, and the prohibition on the sale of the shares for a fixed period.

For example, an employee may be given some shares in the company for which they work but is not allowed to sell them for three years. If the market value of the shares will be lower than it would have been if they had been unrestricted then ITEPA03/S423 (3) applies. When the employee receives the shares tax and NIC will be paid on this lower value. At the three year point, when the shares become unrestricted any charge is based on the market value of the shares at that time, on the uncharged proportion see (ERSM30400).