Income Tax (Earnings and Pensions) Act 2003

194 The amount of the notional loan U.K.

(1) The amount of the notional loan initially outstanding is—

where—

MV is—

• (a) the market value of fully paid up shares of the same class as the employment-related shares, or

• (b) if the employment-related shares consist of an interest in shares, the proportion of the market value of fully paid up shares of the same class as those in which the interest subsists that corresponds to the size of the interest, and

DA is the total of any deductible amounts.

(2) For the purposes of subsection (1) each of the following is a “deductible amount”—

(a) any payment made for the employment-related shares at or before the time of the acquisition;

(b) any amount that constitutes earnings from the employee’s employment under Chapter 1 of this Part (earnings) in respect of the acquisition;

(c) if the acquisition results from the exercise of a share option—

(i) any amount that constitutes earnings from the employment under Chapter 1 of this Part (earnings) in respect of the receipt of the share option,

(ii) any amount that is treated as earnings from the employment under Chapter 10 of this Part (taxable benefits: residual liability to charge) in respect of its receipt, and

(iii) any amount that counts as employment income of the employee under section 476 or 477 (charge on employee on exercise etc. of option by employee or another person) in respect of the exercise; and

(d) if the acquisition results from the exercise of a share option and an amount counts as employment income of the employee under section 526 (approved CSOP schemes: charge where option granted at a discount) in respect of the share option, so much of that amount as is attributable to the employment-related shares.

(3) The amount of the notional loan outstanding at any subsequent time is the difference between—

(a) the amount initially outstanding, and

(b) the amount of any payments or further payments made for the employment-related shares after the acquisition but before that time.