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HMRC internal manual

Employment Related Securities Manual

HM Revenue & Customs
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Securities acquired for less than market value: employee resident but not ordinarily resident in UK: leaving the UK (up to 5 April 2015)

Residence: options granted pre-6 April 2008

A resident but not ordinarily resident employee may be granted a share option in respect of a UK employment but exercise this after they have left the UK permanently.

There may be a charge on the grant of the option under section 62 as general earnings. The charge is on the money’s worth of the option, i.e. the cash amount the employee in question could realistically be expected to obtain for the option at the grant date. Refer questions of valuation to Shares and Assets Valuation - see ERSM220080.

As regards the exercise of the option, the consideration received is:

  • chargeable by reference to the circumstances of the year in which the securities are acquired; and
  • assessable in the year in which it is received.

Section 421E (2) disapplies Chapter 3C where earnings from the employment at the time of acquisition of the securities are not general earnings to which any of the charging provisions of Chapter 4 or 5 of Part 2 apply. This is a reference to general earnings for the time when the acquisition occurs. The year when any earnings are received is simply not relevant for this purpose. An employee may well receive taxable earnings after leaving the UK that were earned in the period before departure but the test is whether there are any earnings within the charge to UK tax at the time of acquisition after leaving.

If the employee’s employment changes when they leave the UK, then Chapter 3C will still apply if, in the last year in which the old employment was held, the earnings from it were general earnings. In that case ITEPA03/S421E (3) operates to apply Chapter 3C in the year of exercise because it would have applied in the last year of employment and section 421E (2) will not operate to exempt the acquisition from charge even if there are no general earnings in the year of exercise. It will be a question of fact as to whether the employment has stayed the same.

But if:

  • the employment stays the same, but
  • acquisition of the securities occurs

    • after ceasing to be R/NOR in the UK, and
    • when the earnings from the employment are not subject to UK tax as general earnings (or would not have been had there been any),

then the exercise and acquisition of shares will not give rise to a charge because of ITEPA03/S421E (2).


Henri is resident but not ordinarily resident in the UK when his employers, Gismo Group PLC, grant him an option to purchase 1,000 shares in 3 years’ time, subject to performance and employment conditions. He becomes entitled to exercise in Year 3, but does not do so until Year 4. In Year 4 he acquires 1,000 shares under the option.

See Flowchart (PDF 14kb)

For guidance on the effect of residence on charges under Part 7 generally, including Chapter 3C, from 6 April 2015 onwards, see ERSM162000.