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HMRC internal manual

Employment Related Securities Manual

Securities with Artificially Enhanced Value


Chapter 3B in Part 7 of ITEPA counters avoidance. It treats value realised by artificial increases to the value of securities (things done other than for genuine commercial purposes, see ERSM60020) as employment income.


Chapter 3B applies with effect from 16 April 2003, although some of the provisions affecting restricted securities only came into force on 1 September 2003. It does not matter whether the securities were acquired before or after 16 April 2003, but those acquired before are treated as if acquired on 16 April 2003 (FA03/SCH22/Para6).

The charge

The charge applies where the market value of a security has been increased by more than10% in a relevant period. See examples at ERSM60030.

The charge imposed by ITEPA03/S446L (ERSM60100) is a free-standing one. There are also provisions under ITEPA03/S446N and ITEPA03/S446M inrelation to restricted securities which modify the charge under Chapter 2 (ERSM60120).

How this chapter works

There is an annual charge on the amount of the artificial increase. See ERSM60100.

If there is potential Chapter 3B liability

HMRC officers should seek advice from the Employee Shares and Securities Unit (ESSU) – see ERSM10040.

Multiple charges

If unusual structures or transactions which have their own tax consequences are used in an attempt to avoid tax it is highly likely that multiple charges to Income Tax and NICs will arise under Chapter 3B and elsewhere. Where multiple charges arise in an avoidance case, advice on how to pursue these should be obtained from ESSU – see ERSM10040.

Dependent subsidiary

There was a fore-runner to Chapter 3B in the dependent subsidiary legislation introduced in 1988 – see ERSM61000 et seq.