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HMRC internal manual

Employment Related Securities Manual

HM Revenue & Customs
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Restricted securities: exceptions

Employment-related securities are not ‘restricted securities’ if:

  • the securities are unpaid (or partly paid) and will be forfeited if the balance is not paid up when required - provided there is nothing that might specifically prevent the payment being made - ITEPA03/S424 (1)(a),
  • there is a requirement to dispose of the securities on cessation of employment for misconduct - ITEPA03/S424 (1)(b), and
  • the securities are redeemable for payment - but this exemption only applies to securities before 2 December 2004 - ITEPA03/S424 (1)(c).


Gary Prothero has been provided with shares by his employer but has been told that the shares will have to be sold if he is dismissed for misconduct. If this is the only provision attaching to the shares then they are not considered to be restricted as they are excepted by ITEPA2003/S424 (1)(b).

Redeemable securities acquired before 2 December 2004

A security acquired before 2 December 2004 that is restricted solely by a redeemable condition is not within Chapter 2 in respect of either the acquisition or any chargeable events occurring before 2 December and the employee will be charged on the actual (restricted) value of the security at acquisition under the general earnings rules. However, chargeable events on or after that date will be within Chapter 2 and a further charge may arise (Finance (No. 2) Act 2005).

For acquisitions of redeemable securities on or after 2 December 2004 the provisions of Chapter 2, including elections, apply immediately.

Use of securities in avoidance

There is a further qualification of the exceptions from 2 December 2004. The two remaining exceptions (partly paid shares and forfeiture on cessation for misconduct) do not apply if the shares are acquired in connection with a tax or NICs avoidance scheme - ITEPA03/S424 (2).