Income Tax (Earnings and Pensions) Act 2003

193 Notional loan where acquisition for less than market value

(1) This section applies if—

(a) no payment is made for the employment-related shares at or before the time of the acquisition, or

(b) the payment made at or before that time is less than—

(i) the market value at that time of fully paid up shares of their class, or

(ii) if the employment-related shares consist of an interest in shares, the proportion of the market value at that time of fully paid up shares of the same class as those in which the interest subsists that corresponds to the size of the interest.

(2) For the purposes of subsection (1), any obligation to make payment or further payment at some later time is to be disregarded.

(3) The provisions listed in subsection (4) apply as if a loan (“the notional loan”) had been made to the employee by the employer at the time of the acquisition which—

(a) is an employment-related loan as defined in section 174, and

(b) is interest-free.

(4) 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).

(5) This section is subject to—

• section 491 (approved SIPs: no charge on award of shares as taxable benefit),

• section 519 (approved SAYE option schemes: no charge in respect of exercise of option),

• section 524 (approved CSOP schemes: no charge in respect of exercise of option),

• section 540 (enterprise management incentives: no charge on acquisition of shares as taxable benefit),

• section 542 (exemption: offer made to public and employees), and

• section 544 (exemption: different offers made to public and employees).