Finance Act 2002

104 Discounted securities etc U.K.

(1) Schedule 13 to the Finance Act 1996 (discounted securities: income tax provisions) is amended as follows.

(2) After paragraph 3 (meaning of “relevant discounted security”) insert—

“3A “Issue price etc of securities issued in accordance with qualifying earn-out right

(1) This paragraph applies where a security is issued to a person in accordance with the terms of a qualifying earn-out right.

(2) In any such case the issue price of the security shall be taken for the purposes of this Schedule to be the sum of—

(a) the market value, immediately before the issue of the security, of the right to be issued with the security in accordance with the terms of the qualifying earn-out right, and

(b) any amount payable for the issue of the security in accordance with those terms,

and any reference in this Schedule to the amount paid by the person in respect of his acquisition of the security shall be taken as a reference to that sum.

(3) For the purposes of this paragraph a “qualifying earn-out right” is so much of any right conferred on a person as—

(a) constitutes the whole or any part of the consideration for the transfer by him of shares in or debentures of a company or for the transfer of the whole or part of a business or interest in a business carried on by him or by him and others in partnership;

(b) consists in either a right to be issued with securities of another company or a right which is capable of being discharged in accordance with its terms by the issue of such securities; and

(c) is such that the value of the consideration mentioned in paragraph (a) above is unascertainable at the time when the right is conferred.”.

(3) After paragraph 9 (other transactions deemed to be at market value) insert—

“9A “Securities issued to connected person etc at price in excess of market value: transfer to connected person

(1) Where a relevant discounted security is transferred by a person (“the relevant person”) to a person connected with him and—

(a) the occasion of the relevant person’s acquisition of the security was its issue to him,

(b) the relevant person was, at the time of issue, connected with the issuer or the conditions in sub-paragraph (2) below are satisfied, and

(c) the amount paid by the relevant person in respect of his acquisition of the security exceeds the market value of the security at the time of issue,

the relevant person shall be taken for the purposes of this Schedule not to sustain a loss from the discount on the relevant discounted security.

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

(a) the security is a security issued by a close company;

(b) at the time of issue, the relevant person was not connected with the company;

(c) securities of the same kind as that issued to him were also issued to other persons; and

(d) he and some or all of those other persons, taken together, controlled the company.

(3) In sub-paragraph (2)(d) above, “control” shall be construed in accordance with section 416 of the Taxes Act 1988.

(4) For the purposes of this section, section 414 of the Taxes Act 1988 (meaning of “close company” in the Tax Acts) shall have effect with the omission of subsection (1)(a) (exclusion of companies not resident in the United Kingdom).

(5) Section 839 of the Taxes Act 1988 (connected persons) shall apply for the purposes of this paragraph.”.

(4) Schedule 13 to the Finance Act 1996 (c. 8) shall have effect, and be deemed always to have had effect, with the amendment made by subsection (2).

(5) The amendment made by subsection (3) has effect in relation to transfers on and after 26th March 2002.