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HMRC internal manual

Employment Related Securities Manual

Restricted securities: black-out or close periods: USA and UK listed companies

Typically, a US quoted company will have four ‘black-out periods’. These are periods during which employees are prohibited from dealing in their shares. This blocking period applies to all shares held by relevant employees rather than just to those shares acquired by reason of employment. It could be argued that the restriction that employees cannot sell during four periods would reduce the theoretical market value of the shares.

Similar arguments could be applied to listed UK companies to which ‘Model Code’ restrictions or blackout periods apply. However, HMRC Shares and Assets Valuation agree that there has never been a practice of contending that the market value of quoted securities held by employees is reduced by minor legal restrictions on their sale during close periods. In any event, any theoretical reduction would be extremely small.

It could be argued that, per ITEPA03/S423 (1)(a), legal restrictions on sale by employees are a ‘condition which makes provision to which any of subsections (2) to (4) applies’, but it seems likely that this would have a negligible on value, so that the second leg - ITEPA03/S423 (1)(b) - would not bring the share in as a restricted security. In any event, it could also be argued that such a restriction, being imposed by law or Stock Exchange rules, continues to potentially affect the share after sale, so that the restriction is never lifted and that in the computation in ITEPA03/S428, IUP will equal OP, so giving a nil charge.

Where the employer and employee are content to show the acquisition of such shares at their quoted value we will not seek to argue, solely for that reason, that such securities are restricted within the meaning of ITEPA03/S423 (1).