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HMRC internal manual

Employment Related Securities Manual

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HM Revenue & Customs
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Securities with Artificially Enhanced Value

Charge on non-commercial increases

ITEPA03/S446L imposes an annual charge where the market value of employment-related securities at the valuation date is greater by at least 10% as a result of things done otherwise than for genuine commercial purposes (see ERSM60020).

Amount of charge

The taxable amount will be employment income of the employee for the tax year in whichthe valuation date falls. It is:

IMV – MV

where:

IMV (increased market value) is the market value of the employment-related securities on the valuation date, and

MV (market value) is the amount that would be the market value of the employment- related securities on the valuation date if any non-commercial increases during the relevant period were disregarded.

Non-commercial increase

“Non-commercial increase” means an increase in the market value as a result of anything done otherwise than for genuine commercial purposes.

The following are disregarded in arriving at the values:

  • any restrictions having effect in relation to the employment-related securities on the valuation date, and
  • any non-commercial reductions during the relevant period, meaning a reduction in the market value as a result of anything done otherwise than for genuine commercial purposes

Relevant period

The relevant period in any year runs from the later of:

  • date of acquisition, or
  • 6 April

to the earlier of:

  • date of disposal,
  • 5 April, or
  • when Chapter 3B ceases to apply to the securities (unlikely, but possible 7 years after leaving employment, see ERSM20280).

Securities acquired before 16 April 2003 are treated as acquired on that date (ITEPA03/SCH22/Para6(4)).

Valuation date

This is the date on which the “relevant period” ends.

Examples

See ERSM60110. See also Example 4 of ERSM61070, which demonstrates the transition from the dependent subsidiary regime.

Modification of charge on restricted securities

See ERSM60120 for details as to how this charge is modified for restricted securities.

Approved scheme shares acquired

FA04/S88 repealed ITEPA03/S421G (exclusion from Chapters 2 to 4 of Part 7 of shares awarded or acquired under an approved plan or scheme) with effect from 18 June 2004 and applies to shares acquired both before, on and after that date. But for determining any relevant period, such shares are treated as if they were acquired on 18 June 2004.

Public offer shares acquired

FA04/S89 modified ITEPA03/S421F (exclusion for shares acquired under the terms of anoffer to the public – see ERSM20370) with effect from 18June 2004 and applied to shares acquired before that date. For determining any relevant period, such shares are treated as if they were acquired on 18 June 2004.