This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

Employment Related Securities Manual

Securities acquired for less than market value: old regime: structure of charge

What is taxed

Exactly the same undervalues as the current regime - see ERSM70020.

How is it taxed

An interest-free notional loan is deemed to be made by the employer to the employee and the following provisions in Chapter 7 of Part 3 (beneficial loans) apply to it -

ITEPA03/S175 (benefit of taxable cheap loan treated as earnings),

ITEPA03/S178 (exception for loans where interest qualifies for tax relief),

ITEPA03/S180 (threshold for benefit of loan to be treated as earnings),

ITEPA03/S182 (normal method of calculation: averaging),

ITEPA03/S183 (alternative method of calculation),

ITEPA03/S184 (interest treated as paid),

ITEPA03/S185 (apportionment of cash equivalent in case of joint loan etc.), and

ITEPA03/S187 (aggregation of loans by close company to director).


Where relief is given under the following provisions no charge is made:

ITEPA03/S491 (Schedule 2 SIPs: no charge on award of shares as taxable benefit),

ITEPA03/S519 (Schedule 3 SAYE option schemes: no charge in respect of exercise of option),

ITEPA03/S524 (Schedule 4 CSOP schemes: no charge in respect of exercise of option),

ITEPA03/S540 (enterprise management incentives: no charge on acquisition of shares as taxable benefit),

ITEPA03/S542 (exemption: offer made to public and employees), and

ITEPA03/S544 (exemption: different offers made to public and employees).

The charge is also superseded by other charges, which take priority:

  • Earnings - money’s worth charge under ITEPA03/S62, and
  • Chapter 5 Part 7 charge on exercise of option.

Notional loan

For computation of the notional loan see ERSM71020.

For details of the annual charge on the notional loan see ERSM71030.

For discharge of the notional loan see ERSM71050.