Income and Corporation Taxes Act 1988

185 Approved share option schemes. U.K.

(1) M1 The provisions of this section shall apply where, in accordance with the provisions of an approved share option scheme, an individual obtains a right to acquire shares in a body corporate by reason of his office or employment as a director or employee of that or any other body corporate and he obtains that right—

(a) in the case of a savings-related share option scheme, on or after 15th November 1980; or

(b) in the case of any other share option scheme, on or after 6th April 1984.

(2) [F1 M2 Subject to subsections (6) to (6B) below], tax shall not be chargeable under any provision of the Tax Acts in respect of the receipt of the right.

(3) M3 Subject to subsections (4) and, except where paragraph 27(3) of Schedule 9 applies, (5) below, if he exercises the right in accordance with the provisions of the scheme at a time when it is approved—

(a) tax shall not be chargeable under any provision of the Tax Acts in respect of the exercise nor under [F2 section 78 or 79 of the Finance Act 1988 in respect of the shares];

(b) section 29A(1) of the 1979 Act (assets deemed to be acquired at market value) shall not apply in calculating the consideration for the acquisition of the shares by him or for any corresponding disposal of them to him.

(4) [F3 M4 Subsection (3) above] shall not apply in respect of a right, obtained by a person under a scheme which is a savings-related share option scheme, which is exercised within three years of its being obtained by virtue of a provision included in a scheme pursuant to paragraph 21 of Schedule 9.

(5) M5 Subsection (3) above shall not apply in relation to the exercise by any person of a right in accordance with the provisions of a scheme which is not a savings-related share option scheme if—

(a) the period beginning with his obtaining the right and ending with his exercising it is less than three, or greater than ten, years; or

(b) the right is exercised within three years of the date on which he last exercised (in circumstances in which subsection (3) above applied) any right obtained under the scheme or under any other approved share option scheme which is not a savings-related share option scheme (any such right exercised on the same day being disregarded).

[F4 (6) Subsection (6A) below applies where—

(a) a person obtains a right to acquire shares under a scheme which is not a savings-related share option scheme, and

(b) the price at which he may acquire shares by exercising the right is not applicable by virtue of provision included in the scheme pursuant to paragraph 29(2) of Schedule 9.

(6A) Where the aggregate of—

(a) the amount or value of any consideration given by him for obtaining the right, and

(b) the price at which he may acquire the shares by exercising the right,

is less than the market value, at the time he obtains the right, of the same quantity of issued shares of the same class, he shall be chargeable to tax under Schedule E for the year of assessment in which he obtains the right on the amount of the difference; and the amount so chargeable shall be treated as earned income, whether or not it would otherwise fall to be so treated.

(6B) Subsection (6A) above shall also apply where—

(a) a person obtains a right to acquire shares under a scheme which is not a savings-related share option scheme, and

(b) the price at which he may acquire shares by exercising the right is applicable by virtue of provision included in the scheme pursuant to paragraph 29(2) of Schedule 9;

but with the substitution for “the market value” of “85 per cent. of the market value”.]

(7) M6 For the purposes of section 32(1)(a) of the 1979 Act (computation of chargeable gains: allowable expenditure) the consideration given for shares acquired in the exercise of the right shall be taken to have included that part of any amount on which income tax is payable in accordance with subsection [F5 (6A)] above which is attributable to the shares disposed of.

This subsection applies whether or not the exercise is in accordance with the provisions of the scheme and whether or not the scheme is approved at the time of the exercise.

(8) Where a person is chargeable to tax under subsection [F5 (6A)]above on any amount (the “amount of the discount”) and subsequently, in circumstances in which subsection (3) above does not apply—

(a) M7 he is chargeable to tax under section 135, the amount of the gain on which he is chargeable to tax under that section shall be reduced by that part of the amount of the discount which is attributable to the shares in question; or

(b) M8 he is treated by virtue of section 162 as having had the benefit of a notional interest-free loan, the amount of the notional loan initially outstanding shall be reduced by that part of the amount of the discount which is attributable to the shares in question.

(9) Where the provisions of a scheme which is not a savings-related share option scheme are approved in pursuance of an application made under paragraph 1 of Schedule 10 to the M9 Finance Act 1984 before 1st January 1985 (and the approval has not been withdrawn), this section shall apply in relation to any right obtained before 1st July 1985 as if the scheme containing those provisions had been approved under that Schedule during the period beginning with the date on which that right was obtained and ending with the date on which those provisions were actually so approved.

(10) In this section “savings-related share option scheme” has the meaning given by Schedule 9.

Textual Amendments

F1 Words in s. 185(2) substituted by Finance Act 1991 (c. 31, SIF 63:1), s. 39(3)(8)(in relation to rights obtained on or after 1.1.1992)

F2 1988(F) s.89in respect of acquisitions on or after 26October 1987.Previously

“section 138(1)(a) in respect of an increase in the market value of the shares”.

F3 Words in s. 185(4) substituted by Finance Act 1991 (c. 31, SIF 63:1), s. 39(4)(8)(in relation to rights obtained on or after 1.1.1992)

F4 S. 185(6)(6A)(6B) substituted (1.1.1992) for s. 185(6) by Finance Act 1991 (c. 31, SIF 63:1), s. 39(5)(7)

F5 Words in s. 185(7)(8) substituted (1.1.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 39(6)((7)

Modifications etc. (not altering text)

C1 See 1988(F) s.68—benefits derived by director etc. from public offers not treated as emolument.

Marginal Citations

M1 Source—1980 s.47(1); 1984 s.38(1)

M2 Source—1980 s.47(1)(a); 1984 s.38(2)

M3 Source—1980 s.47(1)(b); 1981 s.90(3)(a); 1984 s.38(3)(a)

M4 Source—1980 s.47(2)

M5 Source—1984 s.38(4)

M6 Source—1984 s.38(6)

M7 Source—1984 s.38(7)(a), (8)

M8 Source—1984 s.38(7)(b), (9)

M9 1984 Sch.10 1(5)