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HMRC internal manual

Employment Related Securities Manual

Disposals for more than Market Value: Overview


This legislation was first introduced in 1976 to tackle avoidance involving “stop-loss”. This is where employers protect employees from a fall in the value of their shares. The 1976 legislation covered this as well as most other situations where employees could sell their shares for more than their market value.

The provisions were incorporated in ICTA88/S162 (6) and were rewritten as Chapter 9 of Part 3 ITEPA 2003 from 6April 2003. From 16 April 2003, Schedule 22 FA 2003 amended the provisions and they moved to Part 7 ITEPA as Chapter 3D.

Pre-16 April 2003 acquisitions of securities

The current charge entirely replaces its predecessor and applies from 16 April 2003 to all securities acquired before, on or after that date, in respect of disposals on or after that date.

See ERSM80100 for an explanation of the pre-16 April 2003 provisions and how they differ from the current provisions.


ERSM80020 explains the definitions of the terms used.

What is taxed?

Where employment-related securities are disposed of by an associated person for more than their market value, the difference between the disposal proceeds and market value is charged to Income Tax (see ERSM80030). The additional sale proceeds may come from:

  • the employer buying back the securities at an agreed value,
  • the employer making up the difference where securities are sold to a third party,
  • arrangements that enable employees to sell their shares at an inflated price over that achieved by other shareholders (perhaps during a take-over of their employer), or
  • exchanges of existing securities for more valuable securities.

How is it charged?

The difference is charged as employment income of the employee. However any disposal after the death of the employee is exempt - see ERSM20270.