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HMRC internal manual

Employment Related Securities Manual

HM Revenue & Customs
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Securities with Artificially Depressed Value

Tax treatment before 16 April 2003

Chapter 3A has effect from 16 April 2003. Before then there had been avoidance schemes using conditional shares under ICTA88/S140A (which became Chapter 2 Part 7 ITEPA 2003 as originally enacted). See Example 2 in ERSM50030.

Where such schemes straddle the 16 April 2003, ITEPA03/S446F modifies the conditional share charge on lifting of the condition of forfeiture or disposal of the shares (see ERSM30230).

Conditions for modification of charge

Two conditions must apply:

  • The market value of the shares must be artificially low where it has been reduced by at least 10% as a result of things done otherwise than for genuine commercial purposes within the period beginning—
    • 7 years before the chargeable event, or
    • with 16th April 2003

whichever is later.

  • There is a chargeable event in relation to shares if ITEPA03/S427 (as originally enacted - the old ICTA88/S140A) applies in relation to them.

Modification of charge under section 428 (as originally enacted)

MV in ITEPA03/S428 (1) (as originally enacted) is increased by the amount of the depreciatory transaction (the things done otherwise than for genuine commercial purposes).