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HMRC internal manual

Employment Related Securities Manual

Securities acquired for less than market value: non-residents (up to 5 April 2015)


Employees may be not resident in the UK but nevertheless be chargeable to tax under ITEPA03/S27 in Chapter 5 Part 2 of ITEPA, where the general earnings are:

  • in respect of duties performed in the UK, or
  • from overseas Crown employment subject to UK tax.

Their non-resident status will not be sufficient to ensure that there is no charge to tax on the exercise of an option or subsequent sale of shares acquired.

Chapter 5 Part 7 of ITEPA (Securities Options) does not apply where general earnings were not within sections 15, 22 or 26 at the time the employee acquired the securities option (ITEPA03/S474 (1)).

However, the residence rules for Chapter 3C are in ITEPA03/S421E (2) and are wider than this. Chapter 3C will apply where general earnings would have fallen within the scope of Chapter 5 of Part 2 ITEPA03, which includes ITEPA03/S27.

See ERSM70425 where there are UK duties before becoming resident in UK.


Enrico accepts a short-term employment with UK company, We’reInTrouble Ltd from 1 November 2011 to 30 June 2012. The terms of employment are a salary of £250,000 plus options granted on 1 November to be exercisable any time from 1 July 2012 to 31 October 2012.

He returns to employment in his own country when his contract ends. He never becomes either resident or ordinarily resident. Having done an excellent job of turning the company round he is able to exercise his options in August 2012, making a gain of £50,000.

As Enrico had general earnings from UK employment during 2012/13, there is a charge to tax under Chapter 3C on the gain made when the relevant shares were acquired at undervalue via the option.

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