Finance Act 2003

Consequential amendments of other enactments U.K.

47 (1) In section 98 of the Taxes Management Act 1970 (c. 9) (penalties for failure to furnish information etc)— U.K.

(a) in the first column of the Table, at the appropriate place insert “ Section 421J(4) of ITEPA 2003. ”, and

(b) in the second column of the Table, for the entries relating to sections 432, 433, 445, 465, 466 and 486 of the Income Tax (Earnings and Pensions) Act 2003 (c. 1) substitute “ Section 421J(3) of ITEPA 2003. ”.

(2) Sub-paragraph (1) has effect in accordance with the provision made for the substitution of Chapter 1 of Part 7 of the Income Tax (Earnings and Pensions) Act 2003.

48 (1) In section 4(4)(a) of— U.K.

(a) the Social Security Contributions and Benefits Act 1992 (c. 4) (payments treated as earnings), and

(b) the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (c. 7) (corresponding provision for Northern Ireland),

for the words after “479” substitute “ of ITEPA 2003 in respect of which an amount counts as employment income of the earner under section 476 of that Act (charge on acquisition of securities pursuant to option etc), reduced by any amounts deducted under section 480(1) to (6) of that Act in arriving at the amount counting as such employment income; ”.

(2) Sub-paragraph (1) has effect in accordance with the provision made for the substitution of Chapter 5 of Part 7 of the Income Tax (Earnings and Pensions) Act 2003.

49 U.K. The Taxation of Chargeable Gains Act 1992 (c. 12) is amended as follows.

50 (1) After section 119 insert— U.K.

“119A Increase in expenditure by reference to tax charged in relation to employment-related securities

(1) This section applies to a disposal of an asset consisting of employment-related securities if the disposal—

(a) is an event giving rise to a relevant income tax charge, or

(b) is the first disposal after an event, other than a disposal, giving rise to a relevant income tax charge.

(2) Section 38(1)(a) applies as if the relevant amount had formed part of the consideration given by the person making the disposal for his acquisition of the employment-related securities.

(3) For the purposes of this section an event gives rise to a relevant income tax charge if it results in an amount counting as employment income—

(a) under section 426 of ITEPA 2003 (restricted securities),

(b) under section 438 of ITEPA 2003 by virtue of section 439(3)(a) of that Act (conversion of convertible securities),

(c) under section 446U of ITEPA 2003 (securities acquired for less than market value: discharge of notional loan), or

(d) under section 476 of ITEPA 2003 by virtue of section 477(3)(a) of that Act (acquisition of securities pursuant to employment-related securities option),

in respect of the employment-related securities.

(4) For the purposes of this section “the relevant amount” is the aggregate of the amounts counting as employment income as mentioned in subsection (3) above by reason of events occurring—

(a) not later than the disposal, and

(b) where this section has applied to an earlier disposal of the employment-related securities, after the last disposal to which this section applied.

(5) But where the relevant amount consists of or includes an amount counting as employment income under section 476 of ITEPA 2003, it is to be increased by the aggregate of any amounts deducted under section 480(5)(a) or (b), 481 or 482 of that Act in arriving at the amount of that employment income.

(6) Where securities or interests in securities cease to be employment-related securities—

(a) by reason of subsection (6) of section 421B of ITEPA 2003 in circumstances in which, immediately before the employee’s death, the employment-related securities are held otherwise than by the employee, or

(b) by reason of subsection (7) of that section,

they are to be regarded for the purposes of this section as remaining employment-related securities until the next occasion on which they are disposed of.

(7) In this section—

• “employment-related securities”, and

• “employee”, in relation to employment-related securities,

• have the same meaning as in Chapters 1 to 4 of Part 7 of ITEPA 2003.

(8) References in this section to ITEPA 2003 are to that Act as amended by Schedule 22 to the Finance Act 2003.”.

(2) Sub-paragraph (1) has effect in relation to disposals on or after 16th April 2003.

51 U.K. In section 120 (increase in expenditure by reference to tax charged in relation to shares etc), after subsection (8) insert—

“(9) References in this section to ITEPA 2003 are to that Act as originally enacted.”.

52 (1) After section 149A insert— U.K.

“149AA Restricted and convertible employment-related securities

(1) Where an individual has acquired an asset consisting of employment-related securities which are—

(a) restricted securities or a restricted interest in securities, or

(b) convertible securities or an interest in convertible securities,

the consideration for the acquisition shall (subject to section 119A) be taken to be equal to the aggregate of the actual amount or value given for the employment-related securities and any amount that constituted earnings under Chapter 1 of Part 3 of ITEPA 2003 (earnings) in respect of the acquisition.

(2) Subsection (1) above applies only to the individual making the acquisition and, accordingly, is to be disregarded in calculating the consideration received by the person from whom the employment-related securities are acquired.

(3) This section has effect in relation to acquisitions on or after the day appointed under paragraph 3(2) of Schedule 22 to the Finance Act 2003.

(4) In this section “employment-related securities” has the same meaning as in Chapters 1 to 4 of Part 7 of ITEPA 2003 (as substituted by Schedule 22 to the Finance Act 2003).

(5) In this section—

• “restricted interest in securities”, and

• “restricted securities”,

• have the same meaning as in Chapter 2 of that Part of ITEPA 2003 (as so substituted).

(6) In this section “convertible securities” has the same meaning as in Chapter 3 of that Part of ITEPA 2003 (as so substituted).”.

53 U.K. In section 149B (employee incentive schemes: conditional interests in shares), after subsection (4) insert—

“(5) This section does not apply to acquisitions on or after the day appointed under paragraph 3(2) of Schedule 22 to the Finance Act 2003.

(6) References in this section to ITEPA 2003 are to that Act as originally enacted.”.

54 (1) In section 288 (interpretation), after subsection (1) insert— U.K.

“(1A) If any employment-related securities option would not otherwise be regarded as an option for the purposes of this Act, it shall be so regarded; and the acquisition of securities by an associated person pursuant to an employment-related securities option is to be treated for the purposes of this Act as the exercise of the option.

Expressions used in this subsection and Chapter 5 of Part 7 of ITEPA 2003 have the same meaning in this subsection as in that Chapter.”.

(2) Sub-paragraph (1) has effect in accordance with the provision made for the substitution of Chapter 5 of Part 7 of the Income Tax (Earnings and Pensions) Act 2003 (c. 1).

55 (1) The Social Security Contributions (Share Options) Act 2001 (c. 20) is amended as follows. U.K.

(2) The amendments of that Act have effect on and after the day appointed under paragraph 3(2).

56 U.K. In section 2(3)(b) (effect of notice under section 1), insert at the end “ (less any deductible amounts under section 480(1) to (6) of that Act). ”.

57 (1) Section 3 (special provision for roll-overs) is amended as follows. U.K.

(2) In subsection (4)—

(a) in paragraph (a), for “section 485(1) to (4)” substitute “ section 483(1) to (4) ”, and

(b) insert at the end of paragraph (b)(i) “ (less any deductible amounts under section 480(1) to (6) of that Act). ”.

(3) In subsection (6), for “485(1) to (3)” substitute “ 483(1) to (3) ”.

(4) In subsection (11)(a), insert at the end “ (less any deductible amounts under section 480(1) to (6)); ”.

58 U.K. In section 5(2)(c) (interpretation), for “483(1)” substitute “ 477(6) ”.

59 U.K. Schedule 23 to this Act (corporation tax relief for employee share acquisitions) is amended as follows.

60 (1) Paragraph 1 is amended as follows. U.K.

(2) In sub-paragraph (1)(b), for “in exercise of” substitute “ pursuant to ”.

(3) For sub-paragraph (2) substitute—

“(2) Part 4 of this Schedule makes further provision for cases where the shares acquired are restricted shares.

(2A) Part 4A of this Schedule makes further provision for cases where the shares acquired are convertible shares.”.

(4) Sub-paragraph (2) has effect on and after the day appointed under paragraph 3(2).

(5) Sub-paragraph (3) has effect in accordance with the provision made for the substitution of Part 4 of, and the insertion of Part 4A in, Schedule 23.

61 (1) For paragraph 5(2) substitute— U.K.

“(2) Where the shares acquired are restricted shares, the provisions of this Part have effect subject to the provisions of Part 4 of this Schedule.

(3) Where the shares acquired are convertible shares, the provisions of this Part have effect subject to the provisions of Part 4A of this Schedule.”.

(2) Sub-paragraph (1) has effect in accordance with the provision made for the substitution of Part 4 of, and the insertion of Part 4A in, Schedule 23.

62 (1) For paragraph 11(2) substitute— U.K.

“(2) Where the shares acquired pursuant to the option are restricted shares, the provisions of this Part have effect subject to the provisions of Part 4 of this Schedule.

(3) Where the shares acquired pursuant to the option are convertible shares, the provisions of this Part have effect subject to the provisions of Part 4A of this Schedule.”.

(2) Sub-paragraph (1) has effect in accordance with the provision made for the substitution of Part 4 of, and the insertion of Part 4A in, Schedule 23.

63 (1) In paragraph 12, for “in exercise of” substitute “ pursuant to ”. U.K.

(2) Sub-paragraph (1) has effect on and after the day appointed under paragraph 3(2).

64 (1) Paragraph 13 is amended as follows. U.K.

(2) In sub-paragraph (2)(b), for “in exercise of” (in both places) substitute “ pursuant to ”.

(3) For sub-paragraph (2)(c) substitute—

“(c) in determining the amount of relief—

(i) any consideration given in respect of the grant of the new option is treated as if it had been given in respect of the grant of the old option, and

(ii) any consideration given in respect of the acquisition of shares pursuant to the new option is treated as if it had been given in respect of the acquisition of shares pursuant to the old option.”.

(4) In sub-paragraph (3)(b), for “its exercise” substitute “ the shares acquired pursuant to it ”.

(5) This paragraph has effect on and after the day appointed under paragraph 3(2).

65 (1) For paragraph 14 substitute— U.K.

“Income tax position of the employee U.K.

14 (1) It must be the case that the acquisition of shares pursuant to the option—

(a) is a chargeable event in relation to the employee for the purposes of section 476 of the Income Tax (Earnings and Pensions) Act 2003 (whether or not an amount counts as employment income by virtue of that event), or

(b) would be such a chargeable event in relation to the employee if the conditions specified in sub-paragraph (2) were met.

(2) The conditions mentioned in sub-paragraph (1)(b) are—

(a) that the employee was resident and ordinarily resident in the United Kingdom at all material times, and

(b) that the duties of the employment by reason of which the option was granted were performed in the United Kingdom at all material times.”.

(2) Sub-paragraph (1) has effect on and after the day appointed under paragraph 3(2).

66 (1) Paragraph 15 is amended as follows. U.K.

(2) In sub-paragraph (1)—

(a) for “the option is exercised” substitute “ they are acquired pursuant to the option ”, and

(b) for “or exercise of” substitute “ of the option or the acquisition of the shares pursuant to ”.

(3) In sub-paragraph (3), for “or exercise of” substitute “ of the option or the acquisition of the shares pursuant to ”.

(4) This paragraph has effect on and after the day appointed under paragraph 3(2).

67 (1) In paragraph 17(1), for “in exercise of” substitute “ pursuant to ”. U.K.

(2) Sub-paragraph (1) has effect on and after the day appointed under paragraph 3(2).

68 (1) For Part 4 substitute— U.K.

“Part 4 U.K. Provisions applying in case of restricted shares

18 Introduction

In the case of—

(a) an award of restricted shares, or

(b) the acquisition pursuant to an option of restricted shares,

the provisions of Part 2 or 3 have effect subject to the provisions of this Part of this Schedule.

19 Meaning of “restricted shares”

Shares are “restricted shares” for the purposes of this Schedule if they are restricted securities, or a restricted interest in securities, for the purposes of Chapter 2 of Part 7 of the Income Tax (Earnings and Pensions) Act 2003 (see sections 423 and 424 of that Act).

20 Income tax position of employee in case of restricted shares

(1) Where the recipient acquires restricted shares, this paragraph applies in place of paragraph 7 (income tax position of the employee).

(2) It must be the case that the employee —

(a) either—

(i) is subject to a charge to income tax under Chapter 1 of Part 3 of the Income Tax (Earnings and Pensions) Act 2003 in respect of the award, or

(ii) is not subject to such a charge but will be subject to a charge to income tax under the Income Tax (Earnings and Pensions) Act 2003 by virtue of section 426 of that Act on the occurrence of an event in relation to the shares that is a chargeable event for the purposes of that section, or

(b) would be within paragraph (a) if the conditions specified in sub-paragraph (4) were met.

(3) Where but for the death of the employee sub-paragraph (2)(a)(ii) would apply in relation to restricted shares acquired under an award of shares, it is to be treated as applying in relation to the restricted shares.

(4) The conditions mentioned in sub-paragraph (2)(b) are—

(a) that the employee was resident and ordinarily resident in the United Kingdom at all material times, and

(b) that the duties of the employment by reason of which the award was made or the option was granted were performed in the United Kingdom at all material times.

21 Amount of relief in case of restricted shares

(1) Where the recipient acquires restricted shares, this paragraph applies in place of paragraph 8 or 15 (amount of relief).

(2) Relief is available—

(a) on the award of the shares or, where they are acquired pursuant to an option, on that acquisition,

(b) on any event that is a chargeable event in relation to the shares for the purposes of section 426 of the Income Tax (Earnings and Pensions) Act 2003,

(c) on the death of the employee.

(3) The amount of the relief on the award of the shares is equal to the amount that constitutes earnings from the employee’s employment under Chapter 1 of Part 3 of the Income Tax (Earnings and Pensions) Act 2003 in respect of the award.

(4) The amount of the relief on the acquisition of the shares pursuant to the option is equal to the amount that counts as employment income of the employee under section 476 of the Income Tax (Earnings and Pensions) Act 2003 in respect of the acquisition, increased by any amounts deducted under sections 481 and 482 of that Act.

(5) Where restricted shares acquired as mentioned in sub-paragraph (3) or (4) are also convertible shares, the total amount of the relief in respect of the acquisition is whichever is the greater of—

(a) in the case of an award of shares, the amounts mentioned in sub-paragraph (3) and paragraph 22C(3), and

(b) in the case of an acquisition of shares pursuant to an option, the amounts mentioned in sub-paragraph (4) and paragraph 22C(4).

(6) The amount of the relief on an event that is a chargeable event for the purposes of section 426 of the Income Tax (Earnings and Pensions) Act 2003 is equal to the amount that counts as employment income of the employee under that section in respect of that event.

(7) The amount of the relief on the death of the employee is equal to the amount that (disregarding section 428(6) and (9) of the Income Tax (Earnings and Pensions) Act 2003) would count as employment income of the employee if there were a chargeable event within section 427(3)(c) of that Act immediately before the restricted shares ceased to be employment-related securities by virtue of the employee’s death.

(8) Section 446E(3) of the Income Tax (Earnings and Pensions) Act 2003 is to be disregarded in determining the amounts of the reliefs given by sub-paragraphs (6) and (7).

(9) The amount of any non-commercial increase in the market value of the restricted shares since the time of the acquisition is to be disregarded for the purpose of determining the amounts of the reliefs given by sub-paragraphs (6) and (7).

• “Non-commercial increase” has the same meaning as in Chapter 3B of Part 7 of the Income Tax (Earnings and Pensions) Act 2003.

(10) If the award or grant was made partly for the purposes of a business meeting the requirements of paragraph 3 (business must be within the charge to corporation tax) and partly for the purposes of a business in relation to which those requirements are not met, the amount of the relief shall be reduced to such extent as is just and reasonable.

(11) Where the employee—

(a) is not subject to a charge to income tax mentioned in sub-paragraph (3), (4) or (6), or would not be subject to the charge to income tax mentioned in sub-paragraph (7), but

(b) would be subject to such a charge if the conditions specified in paragraph 20(4) were met,

the amount of the relief is to be taken to be the amount that would be the amount of the relief if those conditions were met.

22 Timing of relief in case of restricted shares

(1) Where the recipient acquires restricted shares, this paragraph applies in place of paragraph 10 or 17 (timing of relief).

(2) The relief mentioned in paragraph 21(3) is given for the accounting period in which the recipient acquires the restricted shares pursuant to the award.

(3) The relief mentioned in paragraph 21(4) is given for the accounting period in which the recipient acquires the restricted shares pursuant to the option.

(4) The time when the shares are acquired is when the recipient acquires a beneficial interest in the shares and not, if different, the time the shares are conveyed or transferred.

(5) The relief mentioned in paragraph 21(6) is given for the accounting period in which the chargeable event takes place.

(6) The relief mentioned in paragraph 21(7) is given for the accounting period in which the employee dies.”.

(2) Sub-paragraph (1) has effect on and after the day appointed under paragraph 3(2) but does not affect any restricted shares acquired before 16th April 2003.

69 (1) After Part 4 insert— U.K.

“Part 4A U.K. Provisions applying in case of convertible shares

22A Introduction

In the case of—

(a) an award of convertible shares, or

(b) the acquisition pursuant to an option of convertible shares,

the provisions of Part 2 or 3 have effect subject to the provisions of this Part of this Schedule.

22B Meaning of “convertible shares”

(1) Shares are “convertible shares” for the purposes of this Schedule if they are convertible securities, or an interest in convertible securities.

(2) But convertible securities which are not shares, or an interest in convertible securities which are not shares, are to be taken to be convertible shares for the purposes of this Schedule as it applies in relation to the reliefs given by paragraph 22C(6) and (7).

(3) In this paragraph “convertible securities” has the same meaning as in Chapter 3 of Part 7 of the Income Tax (Earnings and Pensions) Act 2003 (see section 436 of that Act).

22C Amount of relief in case of convertible shares

(1) Where the recipient acquires convertible shares, this paragraph applies in place of paragraph 8 or 15 (amount of relief).

(2) Relief is available—

(a) on the award of the shares or, where they are acquired pursuant to an option, on that acquisition,

(b) on any event that is a chargeable event in relation to the convertible shares,

(c) on the death of the employee.

(3) The amount of the relief on the award of the shares is equal to the amount that constitutes earnings from the employee’s employment under Chapter 1 of Part 3 of the Income Tax (Earnings and Pensions) Act 2003 (as modified by section 437 of that Act) in respect of the award.

(4) The amount of the relief on the acquisition of the shares pursuant to an option is equal to the amount that counts as employment income of the employee under section 476 of the Income Tax (Earnings and Pensions) Act 2003 (as modified by section 437 of that Act) in respect of the acquisition, increased by any amounts deducted under sections 481 and 482 of that Act.

(5) Where convertible shares acquired as mentioned in sub-paragraph (3) or (4) are also restricted shares, the total amount of the relief in respect of the acquisition is whichever is the greater of—

(a) in the case of an award of shares, the amounts mentioned in sub-paragraph (3) and paragraph 21(3), and

(b) in the case of an acquisition of shares pursuant to an option, the amounts mentioned in sub-paragraph (4) and paragraph 21(4).

(6) The amount of the relief on an event that is a chargeable event in relation to the convertible shares is equal to the amount that counts as employment income of the employee in respect of that event.

(7) The amount of the relief on the death of the employee is equal to the amount that would have counted as employment income of the employee in relation to the first event following the employee’s death which would have been a chargeable event were the employee still alive.

(8) Sections 446G and 446H of the Income Tax (Earnings and Pensions) Act 2003 are to be disregarded in determining the amounts of the reliefs given by sub-paragraphs (6) and (7).

(9) If the award or grant was made partly for the purposes of a business meeting the requirements of paragraph 3 (business must be within the charge to corporation tax) and partly for the purposes of a business in relation to which those requirements are not met, the amount of the relief shall be reduced to such extent as is just and reasonable.

(10) Where the employee—

(a) is not subject to a charge to income tax mentioned in sub-paragraph (3), (4) or (6), or would not be subject to the charge to income tax mentioned in sub-paragraph (7), but

(b) would be subject to such a charge if the conditions specified in paragraph 7(2) or 14(2) were met,

the amount of the relief is to be taken to be the amount that would be the amount of the relief if those conditions were met.

(11) In this paragraph and paragraph 22D “chargeable event” means an event that is a chargeable event in relation to the convertible shares within section 439(3)(a) of the Income Tax (Employment and Pensions) Act 2003; but a conversion of the convertible shares into anything other than shares which—

(a) meet the requirements of paragraph 4, and

(b) would meet the requirements of paragraph 6 if they had been acquired by an award of shares,

is not a chargeable event for the purposes of this paragraph.

22D Timing of relief in case of convertible shares

(1) Where the recipient acquires convertible shares, this paragraph applies in place of paragraph 10 or 17 (timing of relief).

(2) The relief mentioned in paragraph 22C(3) is given for the accounting period in which the recipient acquires the convertible shares under the award.

(3) The relief mentioned in paragraph 22C(4) is given for the accounting period in which the recipient acquires the convertible shares pursuant to the option.

(4) The time when shares are acquired is when the recipient acquires a beneficial interest in the shares and not, if different, the time the shares are conveyed or transferred.

(5) The relief mentioned in paragraph 22C(6) is given for the accounting period in which the chargeable event takes place.

(6) The relief mentioned in paragraph 22C(7) is given for the accounting period in which the event takes place which would have been a chargeable event but for the death of the employee.”.

(2) Sub-paragraph (1) has effect on and after the day appointed under paragraph 3(2) (so that, apart from paragraph 22C(2)(a) and (3) to (5) and paragraph 22D(2) to (4), the provisions of Part 4A of Schedule 23 as inserted by that sub-paragraph apply on and after that day in relation to convertible shares irrespective of the time of the acquisition).

70 (1) In paragraph 23(2)(a), for “or 22” substitute “ , 22 or 22D ”. U.K.

(2) Sub-paragraph (1) has effect on and after the day appointed under paragraph 3(2).

71 (1) In paragraph 26 before paragraph (a) insert— U.K.

“(za) “employment” includes a former or prospective employment,”.

(2) Sub-paragraph (1) has effect on and after 16th April 2003.

72 (1) For paragraph 27 substitute— U.K.

“Acquisition of shares pursuant to option after death of employee or recipient U.K.

27 (1) Where after the employee’s death shares are acquired by the recipient pursuant to an option obtained by reason of the employee’s employment, the condition in paragraph 14 (income tax position of the employee) is treated as met if it would be met were the employee still alive.

(2) Where after the death of the recipient shares are acquired pursuant to an option obtained by reason of the employee’s employment, paragraph 1(1)(b) and Parts 3, 4 and 4A of this Schedule, and sub-paragraph (1) above, apply as if the recipient were still alive and the shares were acquired by him.”.

(2) Sub-paragraph (1) has effect on and after the day appointed under paragraph 3(2).

73 (1) Paragraph 31 is amended as follows. U.K.

(2) Omit the entry relating to “subject to forfeiture”.

(3) At the appropriate places insert—

“restricted shares

paragraph 19,”

“convertible shares

paragraph 22B”.

(4) This paragraph has effect in accordance with the provision made for the substitution of Part 4 of, and the insertion of Part 4A in, Schedule 23.