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HMRC internal manual

Employment Related Securities Manual

HM Revenue & Customs
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Securities with Artificially Enhanced Value

Modification of charge on restricted securities

Because Chapter 2 (restricted securities) has a system of charging by reference to post-acquisition chargeable events part of any artificial increase in a security’s value may become chargeable under Chapter 2. Chapter 3B provides two modifications to the Chapter 3B charge under ITEPA03/S446L to cope with this.

Securities subject to restriction

Where employment-related securities are still potentially within the Chapter 2 chargeon restricted securities at some point in the future then relief will be provided for any artificial increases still to be charged through Chapter 2 .

The securities must be “relevant restricted securities”, which are defined as restricted securities (see ERSM30310) not subject to

  1. an election under ITEPA03/S430 (election to ignore outstanding restrictions) in relation to a chargeable event which occurred before the valuation date, or
  2. an election under ITEPA03/S431(1) (election to treat securities as not subject to restrictions) (see ERSM30450).

The amount determined under ERSM60100 is multiplied by CP (chargeable proportion), where

CP = 1 – OP



  • (outstanding proportion) is the amount that would be determined under ITEPA03/S428 (5), (UMV – AMV)/UMV, on the valuation date if there were on that date a chargeable event (resulting in no tax charge).

Where there has been an election under ITEPA03/S431 (2) (election to ignore certain specified restrictions for the purposes of calculating the tax charge on acquisition), OP is the amount that would be determined under ITEPA03/S428 (5) in accordance with ITEPA03/S431 (2).

Securities subject to restriction during relevant period

Where the employment-related securities have been subject to a charge under Chapter 2 (restricted securities) at any time during the relevant period there will be a deduction under ITEPA03/S446N from the chargeable amount, determined as in ERSM60100, to relieve some of the artificial increase already charged.

Relief is given by deducting DA (deductible amounts) in relation to any Chapter 2 chargeable event in the relevant period. Aggregate DA are to be deducted from the amount charged under ITEPA03/S446L (see ERSM60100) as modified by ITEPA03/S446M (see above).

DA is the aggregate of the amounts



TA (taxable amount) is the taxable amount actually determined under ITEPA03/S428 in relation to the Chapter 2 chargeable event, and

ARTA (artificially reduced taxable amount) is the Chapter 2 taxable amount which would have been determined under ITEPA03/S428 in relation to the chargeable event if any non-commercial increases during the period

  • beginning at the same time as the relevant period, and
  • ending immediately before the chargeable event,

had been disregarded.


See the example on ERSM60130 on the practical application of these formulae.

Disapplication of section 429

ITEPA03/S446NA (3) provides that where Chapter 3B applies in relation to employment-related securities, ITEPA03/S429 (case outside Chapter 2 charge in certain control situations) does not subsequently apply in relation to the employment-related securities. This applies from 7 May 2004.

See also ERSM60140 where securities acquired not more than 7 years after artificial increase in their value.