- Latest available (Revised)
- Original (As enacted)
Finance Act 2003, Paragraph 7 is up to date with all changes known to be in force on or before 28 August 2024. There are changes that may be brought into force at a future date. Changes that have been made appear in the content and are referenced with annotations.
Revised legislation carried on this site may not be fully up to date. Changes and effects are recorded by our editorial team in lists which can be found in the ‘Changes to Legislation’ area. Where those effects have yet to be applied to the text of the legislation by the editorial team they are also listed alongside the legislation in the affected provisions. Use the ‘more’ link to open the changes and effects relevant to the provision you are viewing.
Whole provisions yet to be inserted into this Act (including any effects on those provisions):
7(1)After Chapter 3B of Part 7 (inserted by paragraph 6(1)) insert—U.K.
(1)This Chapter applies if—
(a)no payment is made for employment-related securities at or before the time of the acquisition, or
(b)the payment made for employment-related securities at or before that time is less than their market value.
(2)For the purposes of subsection (1) any obligation to make a payment or further payment after the time of the acquisition is to be disregarded.
(3)Where the employment-related securities are, or are an interest in, securities which are not fully paid up, the reference in subsection (1) to the market value of the employment-related securities is to what it would be if the securities were fully paid up.
(4)If section 425(2) (no charge on acquisition of certain restricted securities or restricted interests in securities) applies in relation to the employment-related securities, this Chapter has effect as if the employment-related securities were not acquired until the occurrence of the first event which is a chargeable event for the purposes of section 426 in relation to the employment-related securities.
(5)This section is subject to section 446R (case outside this Chapter).
(1)This Chapter does not apply if—
(a)the employment-related securities are shares (or an interest in shares) in a company of a class,
(b)all the company’s shares of the class are acquired either for no payment or for a payment less than their market value, and
(c)subsection (3) or (4) is satisfied.
(2)Where the company’s shares of the class are not fully paid up, the reference in subsection (1) to their market value is to what it would be if they were fully paid up.
(3)This subsection is satisfied if, at the time of the acquisition of the employment-related securities, the company is employee-controlled by virtue of holdings of shares of the class.
(4)This subsection is satisfied if, at that time, the majority of the company’s shares of the class are not held by or for the benefit of any of the following—
(a)employees of the company,
(b)persons who are related to an employee of the company,
(c)associated companies of the company,
(d)employees of any associated company of the company, or
(e)persons who are related to an employee of any such associated company.
(5)For the purposes of subsection (4) a person is related to an employee if—
(a)the person acquired the shares pursuant to a right or opportunity available by reason of the employee’s employment, or
(b)the person is connected with a person who so acquired the shares or with the employee and acquired the shares otherwise than by or under a disposal made by way of a bargain at arm’s length from the employee or another person who is related to the employee.
(1)Where this Chapter applies an interest-free loan (“the notional loan”) is to be treated as having been made to the employee by the employer at the time of the acquisition.
(2)The provisions listed in subsection (3) apply as though the notional loan were an employment-related loan as defined in section 174 if and for so long as the employment has not terminated.
(3)The provisions are—
section 175 (benefit of taxable cheap loan treated as earnings),
section 178 (exception for loans where interest qualifies for tax relief),
section 180 (threshold for benefit of loan to be treated as earnings),
section 182 (normal method of calculation: averaging),
section 183 (alternative method of calculation),
section 184 (interest treated as paid),
section 185 (apportionment of cash equivalent in case of joint loan etc), and
section 187 (aggregation of loans by close company to director).
(1)The amount of the notional loan initially outstanding is—
where—
MV is the market value of the employment-related securities at the time of the acquisition, and
DA is the total of any deductible amounts.
(2)Where the employment-related securities are, or are an interest in, securities which are not fully paid up, the reference in subsection (1) to the market value of the employment-related securities is to what it would be if the securities were fully paid up.
(3)For the purposes of subsection (1) each of the following is a “deductible amount”—
(a)any payment made for the employment-related securities by the employee, and any payment so made by the person by whom they were acquired (if not the employee), at or before the time of the acquisition,
(b)any amount that constitutes earnings from the employee’s employment under Chapter 1 of Part 3 (earnings) in respect of the acquisition of the employment-related securities,
(c)if section 425(2) (no charge on acquisition of certain restricted securities or restricted interests in securities) applies in relation to the employment-related securities, any amount that counts as employment income of the employee under section 426 by reason of the first event which is a chargeable event for the purposes of that section in relation to the employment-related securities,
(d)if the employment-related securities were acquired on a conversion of other employment-related securities, any amount that counts as employment income of the employee under section 438 (charge on conversion) by reason of the conversion, and
(e)if the acquisition is pursuant to a securities option, any amount that counted as employment income of the employee under section 476 (acquisition of securities pursuant to securities option) in respect of the acquisition.
(4)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 securities after the acquisition but before that time.
(1)The notional loan is treated as discharged when—
(a)the employment-related securities are disposed of otherwise than to an associated person, or
(b)if the employment-related securities were securities, or an interest in securities, not fully paid up at the time of the acquisition, the outstanding or contingent liability to pay for them is released, transferred or adjusted so as no longer to bind any associated person.
(2)If the notional loan is discharged as the result of an event specified in subsection (1), the amount of the notional loan outstanding immediately before the occurrence of the event counts as employment income of the employee for the relevant tax year (whether or not the employment has terminated before or since the acquisition).
(3)The “relevant tax year” is the tax year in which the notional loan is treated as discharged.
(4)The notional loan is also treated as discharged when—
(a)payments or further payments for the employment-related securities equal to the amount initially outstanding in relation to them have been made by an associated person, or
(b)the employee dies.
This Chapter does not affect any liability to income tax arising in respect of the acquisition under—
(a)Chapter 1 of Part 3 (earnings),
(b)Chapter 10 of Part 3 (taxable benefits: residual liability to charge),
(c)Chapter 3 of this Part (acquisition by conversion),
(d)Chapter 3A of this Part (securities with artificially depressed market value), or
(e)Chapter 5 of this Part (acquisition of securities pursuant to securities option).
(1)In this Chapter—
“interest”, in relation to securities,
“securities”,
“securities option”, and
“shares”,
have the meaning indicated in section 420.
(2)In this Chapter “market value” has the meaning indicated in section 421(1).
(3)In this Chapter “the acquisition” has the meaning indicated in section 421B(8) (but subject to section 446Q(4)).
(4)In this Chapter—
“the employment”,
“the employee” (except in section 446R),
“the employer”, and
“employment-related securities”,
have the meaning indicated in section 421B(8).
(5)In this Chapter “associated person” has the meaning indicated in section 421C.
(6)In this Chapter—
“associated company”, and
“employee-controlled”,
have the meaning indicated in section 421H.
(7)In this Chapter “the notional loan” has the meaning indicated in section 446S(1).”.
(2)Sub-paragraph (1) has effect in relation to securities, and interests in securities, acquired on or after 16th April 2003.
The Whole Act you have selected contains over 200 provisions and might take some time to download. You may also experience some issues with your browser, such as an alert box that a script is taking a long time to run.
Would you like to continue?
The Whole Act you have selected contains over 200 provisions and might take some time to download.
Would you like to continue?
The Whole Act you have selected contains over 200 provisions and might take some time to download. You may also experience some issues with your browser, such as an alert box that a script is taking a long time to run.
Would you like to continue?
The Whole Act without Schedules you have selected contains over 200 provisions and might take some time to download. You may also experience some issues with your browser, such as an alert box that a script is taking a long time to run.
Would you like to continue?
The Schedules you have selected contains over 200 provisions and might take some time to download. You may also experience some issues with your browser, such as an alert box that a script is taking a long time to run.
Would you like to continue?
Latest Available (revised):The latest available updated version of the legislation incorporating changes made by subsequent legislation and applied by our editorial team. Changes we have not yet applied to the text, can be found in the ‘Changes to Legislation’ area.
Original (As Enacted or Made): The original version of the legislation as it stood when it was enacted or made. No changes have been applied to the text.
Geographical Extent: Indicates the geographical area that this provision applies to. For further information see ‘Frequently Asked Questions’.
Show Timeline of Changes: See how this legislation has or could change over time. Turning this feature on will show extra navigation options to go to these specific points in time. Return to the latest available version by using the controls above in the What Version box.
Access essential accompanying documents and information for this legislation item from this tab. Dependent on the legislation item being viewed this may include:
This timeline shows the different points in time where a change occurred. The dates will coincide with the earliest date on which the change (e.g an insertion, a repeal or a substitution) that was applied came into force. The first date in the timeline will usually be the earliest date when the provision came into force. In some cases the first date is 01/02/1991 (or for Northern Ireland legislation 01/01/2006). This date is our basedate. No versions before this date are available. For further information see the Editorial Practice Guide and Glossary under Help.
Use this menu to access essential accompanying documents and information for this legislation item. Dependent on the legislation item being viewed this may include:
Click 'View More' or select 'More Resources' tab for additional information including: