Income Tax (Earnings and Pensions) Act 2003

[F1 554J Exclusions: earmarking for employee share schemes (1) U.K.

(1) This section applies if—

(a) there is an arrangement (“B's employee share scheme”) under which, in respect of A's employment with B, an award may be made to A of—

(i) relevant shares, or

(ii) a sum of money the amount of which is to be determined by reference to the market value of any relevant shares at the time the sum is to be paid,

(b) the main purpose of the award of the relevant shares or sum of money would not be the provision of relevant benefits,

(c) the award of the relevant shares or sum of money would be on terms (“the deferred award terms”) the main purpose of which is to defer the receipt of the shares by A, or the payment of the sum of money to A, to a specified date (“the vesting date”) which is after the date (“the award date”) on which the award is made, while providing that the award is revoked if specified conditions are not met on or before the vesting date,

(d) the vesting date would not be more than ten years after the award date, and

(e) as at the award date, there would be a reasonable chance that the award of the relevant shares or sum of money will be revoked because not all the specified conditions will be met on or before the vesting date.

(2) In addition to the provision relating to revocation required by subsection (1)(c) (which must be included), the deferred award terms may also provide that the award of the relevant shares or sum of money is partly revoked if specified conditions are not met on or before the vesting date.

(3) Chapter 2 does not apply by reason of a relevant step within section 554B (by reason of which it would otherwise apply) taken by a person (“P”) if—

(a) the subject of the relevant step is relevant shares (“earmarked shares”) which are earmarked, or otherwise start being held, solely with a view to the meeting of—

(i) an award of relevant shares or a sum of money made to A under B's employee share scheme as mentioned in subsection (1)(a) in relation to which the requirements of subsection (1)(b) to (e) are met, or

(ii) an award of relevant shares or a sum of money which is expected to be made to A under B's employee share scheme as mentioned in subsection (1)(a) and in relation to which the requirements of subsection (1)(b) to (e) would be met,

(b) the number of relevant shares of any type which are earmarked shares does not exceed the maximum number of relevant shares of that type which might reasonably be expected to be needed for meeting the award or expected award, and

(c) there is no connection (direct or indirect) between the relevant step and a tax avoidance arrangement.

(4) If the relevant step mentioned in subsection (3) is taken in relation to an expected award as mentioned in subsection (3)(a)(ii), subsection (5) applies if—

(a) the award is not made before the end of the date (“the final award date”) falling immediately after the period of three months starting with the date on which P takes the relevant step, and

(b) as at the end of the final award date, any of the earmarked shares continue to be held by or on behalf of P solely on the basis mentioned in subsection (3)(a).

(5) This Part has effect as if a relevant step within section 554B were taken at the end of the final award date—

(a) the subject of which is—

(i) the shares which continue to be held as mentioned in subsection (4)(b), and

(ii) any relevant income in relation to those shares (see subsection (13)), and

(b) by reason of which Chapter 2 is to apply (subject only to section 554A(4)).

(6) Subsection (7) applies if, at any time (“the relevant time”)—

(a) any of the earmarked shares cease to be held by or on behalf of P solely on the basis mentioned in subsection (3)(a), but

(b) the shares continue to be held by or on behalf of P on the basis mentioned in section 554B(1)(a) or (b).

(7) This Part has effect as if a relevant step within section 554B were taken at the relevant time—

(a) the subject of which is—

(i) the shares mentioned in subsection (6), and

(ii) any relevant income in relation to those shares (see subsection (13)), and

(b) by reason of which Chapter 2 is to apply (subject only to section 554A(4)).

(8) Subsection (9) applies if—

(a) the relevant step mentioned in subsection (3) is taken in relation to an award which has been made as mentioned in subsection (3)(a)(i), or

(b) the relevant step mentioned in subsection (3) is taken in relation to an expected award as mentioned in subsection (3)(a)(ii) and the award is made before the end of the final award date.

(9) This Part has effect as if a relevant step within section 554B were taken at the end of the vesting date—

(a) the subject of which is—

(i) any of the earmarked shares to which none of subsections (10) to (12) applies, and

(ii) any relevant income in relation to any of the earmarked shares mentioned in sub-paragraph (i) (see subsection (13)), and

(b) by reason of which Chapter 2 is to apply (subject only to section 554A(4)).

(10) This subsection applies to any earmarked shares if—

(a) A receives the shares before the end of the vesting date, and

(b) the receipt of the shares by A gives rise to employment income of A which is chargeable to income tax or which is exempt income.

(11) This subsection applies to any earmarked shares if—

(a) the sum of money mentioned in subsection (1)(a)(ii) (or a part of it) is paid to A before the end of the vesting date,

(b) the payment of the sum to A gives rise to employment income of A which is chargeable to income tax or which is exempt income, and

(c) the payment represents the proceeds of the disposal of the shares, or the payment is made from another source and, correspondingly, the shares are no longer held by any person in relation to the award.

(12) This subsection applies to any earmarked shares if—

(a) before the end of the vesting date, the award (or any part of it) is revoked in accordance with the deferred award terms, and

(b) correspondingly, the shares are no longer held by any person in relation to the award.

(13) In subsections (5)(a)(ii), (7)(a)(ii) and (9)(a)(ii) “relevant income”, in relation to any earmarked shares, means any income—

(a) which, before the relevant step is treated as being taken by subsection (5), (7) or (9) (as the case may be)—

(i) arises (directly or indirectly) from the shares, and

(ii) is the subject of a relevant step within section 554B taken by P by reason of which Chapter 2 would apply apart from section 554Q, and

(b) which, at the time the relevant step is treated as being taken, continues to be held by or on behalf of P on the basis mentioned in section 554B(1)(a) or (b).]

Textual Amendments

F1 Pt. 7A inserted (with effect in accordance with Sch. 2 paras. 52-59 of the amending Act) by Finance Act 2011 (c. 11), Sch. 2 para. 1