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HMRC internal manual

Employment Related Securities Manual

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HM Revenue & Customs
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Post Acquisition Benefits from Securities

Benefits received before 16 April 2003: additional & replacement shares

Bonus & rights issues

Per FA88/S82 (2)(a), a bonus issue or a rights issue of shares may be made by reference to shares which have been acquired in pursuance of a right conferred or an opportunity offered by reason of an office or employment. This will be an acquisition within FA88/S77 (1) and the additional shares will be treated as

  • acquired within FA88/S77 (1), and
  • acquired at the same time as the original shares.

This means that the additional shares are potentially subject to an Income Tax charge on benefits in exactly the same way as the original shares.

Per FA88/S82(2)(b), the original shares and the additional shares are treated as one holding. For the purpose of valuing the shares, the consideration given for the original shares is allocated proportionately to all the shares in the holding.

Company reorganisations

Per FA88/S82 (3), in some circumstances an employee may cease to have a beneficial interest in certain shares but acquire other shares which stand in their place. This happens where there is a company reorganisation to which TCGA92/S127 to TCGA92/S130 apply.

For example, A Ltd acquires B Ltd and pays the shareholders of B Ltd by issuing them with shares in A Ltd in place of the shares in B Ltd. Provided certain conditions are met (see CG52500 onwards) TCGA92/S127 to TCGA92/S130 apply so that the shares in A Ltd stand in the place of the shares in B Ltd.

Where TCGA92/S127 to TCGA92/S130 apply to such a change in the shares held, the following rules apply:

  • The new shares are treated as having been acquired at the same time and in the same way as the old shares. This means that the new shares are potentially liable to the special benefits charge in the same way as were the old shares.
  • If any consideration is received for the old shares this is apportioned between the new shares. If at any subsequent time these shares have to be valued for the purposes of the post-acquisition charge, their value at that subsequent time is taken to be increased by the amount of the consideration apportioned to them.