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HMRC internal manual

Employment Related Securities Manual

HM Revenue & Customs
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Securities with Artificially Depressed Value


The following two examples illustrate the characteristics of avoidance schemes which have sought to reduce Income Tax and NICs by reducing the value of a security, either before or after acquisition, and are counteracted by Chapter 3A.

Example 1: Transactions that depress the value of shares before acquisition

  • Options granted over the majority of the value of a company to a family trust or similar person, with whom there is a special relationship, before shares are acquired by employees;
  • Valuable options owned by a supposed third party that are never exercised;

The granting of the option is often a depreciatory transaction that artificially depresses the value of the shares before they are given to the director in an attempt to avoid a significant charge on the director at acquisition.

Example 2: securities value depressed after acquisition

  • The company used (referred to as a special purpose vehicle or SPV) is incorporated offshore and resident in UK by central management and control, or is an unlimited UK company. This is to allow Schedule F treatment on dividends paid
  • A large dividend or other payment reduces the value of a company for no commercial reason;
  • When a chargeable event occurs, e.g. forfeiture or the lifting of a restriction, the shares are worth very little compared to their original value.

The payment of the dividend or similar is the depreciatory transaction that artificially depresses the value of the shares before there is a post-acquisition chargeable event under Chapter 2.

An alternative scheme to extract cash involved, in place of the dividend, a loan to the employee repayable to the SPV in a fast-depreciating currency.