Finance Act 2013

20 U.K. After section 236A insert—

“Employee shareholders U.K.

236B Exemption for employee shareholder shares

(1) A gain which accrues on the first disposal of an exempt employee shareholder share is not a chargeable gain.

(2) A share is an exempt employee shareholder share if it is—

(a) an employee shareholder share, and

(b) exempt in accordance with sections 236C and 236D.

(3) In this section and sections 236C to 236G—

• shares are “acquired” by an employee if the employee becomes beneficially entitled to them (and they are acquired at the time when the employee becomes so entitled);

• “employee shareholder share” means a share acquired in consideration of an employee shareholder agreement and held by the employee;

• “employee shareholder agreement” means an agreement by virtue of which an employee is an employee shareholder (see section 205A(1)(a) to (d) of the Employment Rights Act 1996);

• “employee” and “employer company”, in relation to an employee shareholder agreement, mean the individual and the company which enter into the agreement.

236C Only first £50,000 of shares under associated agreements to be exempt

(1) An employee shareholder share acquired in consideration of an employee shareholder agreement (“the relevant agreement”) is exempt for the purposes of section 236B only if, immediately after its acquisition, the total value of qualifying shares which have been acquired by the employee does not exceed £50,000.

(2) “Qualifying share” means an employee shareholder share in—

(a) the employer company in relation to the relevant agreement, or

(b) an associated company of that company,

which is acquired by the employee in consideration of an agreement within subsection (3).

(3) An agreement is within this subsection if it is—

(a) the relevant agreement,

(b) another employee shareholder agreement with the same employer company, or

(c) an employee shareholder agreement with an associated company of that company.

(4) For the purposes of this section—

(a) a company is an “associated company” of another if—

(i) one of the two has control of the other, or

(ii) both are under the control of the same person or persons, and

(b) if a company controls another when an employee shareholder agreement is entered into with the employee, paragraph (a) applies as if that continued to be the case (in addition to any other circumstances) when any subsequent employee shareholder agreement is entered into with that employee.

(5) But subsection (4)(b) does not apply as between two companies if—

(a) one of the companies has been dissolved,

(b) the period of two years beginning with the date of the dissolution has passed, and

(c) the employee has not, at any time in that period, been engaged in any office or employment (including engagement under a contract for services) with any company which is an associated company of the dissolved company.

(6) If a number of qualifying shares are acquired by an employee on a day and—

(a) before that day, the value of qualifying shares that have been acquired by the employee does not exceed £50,000, and

(b) at the end of that day, that value does exceed that sum,

the appropriate proportion of the shares (rounded down, if necessary, to the nearest share) is to be treated for the purposes of subsection (1) as having been acquired separately and before the others.

(7) The “appropriate proportion” is the following—

where—

B is the value of qualifying shares acquired before the day;

T is the total value of qualifying shares acquired on the day.

(8) For the purposes of this section, the value of a share (at any time) is its unrestricted market value at the time when it was acquired by the employee.

(9) The unrestricted market value of a share when it is acquired by an employee is what the market value of the share would be immediately after the acquisition, but for any restriction.

For this purpose “restriction” has the meaning given by section 432(8) of ITEPA 2003 (restricted securities for the purposes of Chapter 2 of Part 7 of that Act).

236D Shares not exempt if shareholder or connected person has material interest in company

(1) An employee shareholder share is not exempt for the purposes of section 236B if, on the date on which the share is acquired—

(a) the employee has a material interest in the employer company or a relevant parent undertaking, or

(b) the employee is connected with an individual who has a material interest in the employer company or a relevant parent undertaking.

(2) An employee shareholder share is not exempt for the purposes of section 236B if—

(a) at any time in the period of one year ending with the date on which the share is acquired, the employee had a material interest in the employer company or a relevant parent undertaking, or

(b) on the date on which the share is acquired, the employee is connected with an individual who, at any time in the period of one year ending with that date, had a material interest in the employer company or a relevant parent undertaking.

(3) Subsections (4) and (5) define “material interest” for the purposes of this section.

Those subsections must be read together with subsections (6) to (8).

(4) An individual (“A”) has a material interest in a company if at least 25% of the voting rights in the company are exercisable—

(a) by A,

(b) by persons connected with A, or

(c) by A and persons connected with A together.

(5) If a company is a close company, an individual (“A”) has a material interest in it if—

(a) A,

(b) persons connected with A, or

(c) A and persons connected with A together,

possess such rights as would, in the event of the winding up of the company or in any other circumstances, give an entitlement to receive at least 25% of the assets that would then be available for distribution among the participators.

(6) For the purposes of subsection (1), A is to be treated as having a material interest in a company at any time if either of the following conditions is met.

(7) The first condition is that—

(a) A,

(b) persons connected with A, or

(c) A and persons connected with A together,

have an entitlement to acquire such rights as would (together with any existing rights) give A a material interest in the company.

(8) The second condition is that there are arrangements in place between—

(a) the employer company or a relevant parent undertaking, and

(b) A, or persons connected with A, or A and persons connected with A together,

which enable A or those persons to acquire such rights as would (together with any existing rights) give A a material interest in the company.

(9) In this section—

• “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable);

• “close company” includes a company that would be a close company but for—

  (a)

  section 442(a) of CTA 2010 (exclusion of companies not resident in the United Kingdom), or

  (b)

  sections 446 and 447 of CTA 2010 (exclusion of certain quoted companies);

• “relevant parent undertaking” means any parent undertaking of the employer company and for this purpose “parent undertaking” is to be read in accordance with section 1162 of the Companies Act 2006.

236E Identification of exempt employee shareholder shares

(1) Sections 104 (share pooling), 105 (disposal on or before acquisition) and 106A (identification of securities) do not apply to exempt employee shareholder shares.

(2) Subsection (3) applies where—

(a) an employee holds shares of the same class in a company,

(b) some, but not all, of the shares are exempt employee shareholder shares, and

(c) the employee disposes of some, but not all, of the shares in that holding.

(3) Where this subsection applies—

(a) the employee may determine what proportion of the shares disposed of are to be treated as exempt employee shareholder shares (up to the number of such shares which the employee holds), and

(b) the consideration received for the shares disposed of is to be apportioned accordingly.

(4) For the purposes of this section shares in a company are not to be treated as being of the same class unless they are so treated by the practice of a recognised stock exchange or would be so treated if dealt with on a recognised stock exchange.

236F Reorganisation of share capital involving employee shareholder shares

(1) Section 127 (equation of original shares and new holding on reorganisation) does not apply to exempt employee shareholder shares.

(2) The reference in subsection (1) to section 127 includes that section as applied by sections 135 and 136 (other company reconstructions).

236G Relinquishment of employment rights is not disposal of an asset

(1) This section applies where an individual has acquired shares in consideration of entering into an employee shareholder agreement.

(2) The individual is not to be regarded as disposing of an asset by reason of the individual ceasing to have, or not acquiring, the rights mentioned in section 205A of the Employment Rights Act 1996 (rights which an employee shareholder does not have) in consequence of entering into the agreement.”