Income Tax (Earnings and Pensions) Act 2003

Tax charge on increase in value of shares of dependent subsidiaries U.K.

453 Charge on increase in value of shares of dependent subsidiary U.K.

(1) This section applies if the shares are shares in a company—

(a) which was a dependent subsidiary at the time of the acquisition, or

(b) which was not then a dependent subsidiary but becomes one before the employee ceases to have a beneficial interest in the shares,

and (in either case) there is a chargeable increase in the value of the shares.

(2) The taxable amount determined under section 455 counts as employment income of the employee for the relevant tax year.

(3) The “relevant tax year” is the tax year which includes the appropriate time (within the meaning of section 454(2) or (4)) by reference to which the chargeable increase is determined under that provision.

(4) Section 454 explains what are chargeable increases for the purposes of this section.

(5) This section is subject to—

• section 456 (cases outside charge under this section),

• section 495 (approved SIPs: no charge on increase in value of shares),

• section 520 (approved SAYE option schemes: no charge in respect of post-acquisition benefits), and

• section 525 (approved CSOP schemes: no charge in respect of post-acquisition benefits).

454 Chargeable increases U.K.

(1) This section applies for the purposes of section 453 (charge on increase in value of shares of dependent subsidiary).

(2) In a case within section 453(1)(a) (dependent subsidiary at time of the acquisition) there is a “chargeable increase” in the value of the shares if the value of the shares at the appropriate time exceeds their value at the time of the acquisition.

(3) In subsection (2) “the appropriate time” means whichever is the earlier of—

(a) the end of the period of 7 years after the date of the acquisition, and

(b) the time when the employee ceases to have a beneficial interest in the shares.

(4) In a case within section 453(1)(b) (company becoming dependent subsidiary after time of acquisition) there is a “chargeable increase” in the value of the shares if the value of the shares at the appropriate time exceeds their value at the time when the company becomes a dependent subsidiary.

(5) In subsection (4) “the appropriate time” means whichever is the earlier or earliest of—

(a) the end of the period of 7 years after the date on which the company becomes a dependent subsidiary,

(b) the time when the employee ceases to have a beneficial interest in the shares, and

(c) if the company ceases to be a dependent subsidiary, the time when it does so.

455 Amount of charge U.K.

(1) The taxable amount for the purposes of section 453 (charge on increase in value of shares of dependent subsidiary) is—

where—

I is the amount of the chargeable increase in value of the shares, and

DA is the total of any deductible amounts.

This is subject to subsections (3) and (4).

(2) For the purposes of subsection (1)—

(a) if the consideration for the acquisition is subsequently increased in accordance with the terms on which the acquisition was made, the amount of that increase is a “deductible amount”;

(b) if, before the time by reference to which the chargeable increase is determined, an event occurs in respect of the shares by virtue of which an amount counts as employment income of the employee under—

(i) Chapter 2 of this Part (conditional interests in shares), or

(ii) Chapter 3 of this Part (convertible shares),

that amount is a “deductible amount”.

(3) If, in accordance with the terms on which the acquisition was made, the employee subsequently ceases to have a beneficial interest in the shares as the result of a disposal made for a consideration which is less than the value of the shares or the employee’s interest in them at the time of the disposal, the amount “I” in subsection (1) is—

(a) if the disposal is within section 454(3)(b), an amount equal to the excess of that consideration over the value of the shares or interest at the time of the acquisition, or

(b) if the disposal is within section 454(5)(b), an amount equal to the excess of that consideration over the value of the shares or interest at the time of the company becoming a dependent subsidiary.

(4) If the interest of the employee is less than full beneficial ownership, the amount “I” in subsection (1) is an appropriate proportion of the amount that it would be apart from this subsection.

456 Cases outside charge under section 453 U.K.

(1) Section 453 (charge on increase in value of shares of dependent subsidiary) does not apply in the following cases.

(2) Section 453 does not apply if—

(a) the chargeable increase arises in relation to a disposal of the employee’s beneficial interest in the shares, and

(b) by virtue of section 427 (charge on interest ceasing to be only conditional, etc.), an amount counts as employment income of the employee in respect of the disposal.

(3) Section 453 does not apply in relation to shares in a company within subsection (1)(b) of that section (company becoming a dependent subsidiary after acquisition) if the employee has not, at any time in the period of 7 years ending with the date on which the company became a dependent subsidiary, been a director or employee of—

(a) the employer company,

(b) if different, the company whose shares they are, or

(c) an associated company of a company within paragraph (a) or (b).