BIM44290 - Specific deductions - employee share schemes: periods starting on or after 1 January 2003: Providing shares under FA03/SCH23, a/c periods from 1 Jan 2003 - kind of shares acquired

For shares to be “qualifying shares” under FA03/SCH23 they must be:

• ordinary shares, and
• fully paid up, and
• non-redeemable.

If the shares are not of a class listed on a recognised stock exchange they must also be in a company which:

• is not a subsidiary company; or
• is a subsidiary of a company whose shares are listed on a recognised stock exchange and which is not a close company.

Shares acquired following a takeover

As these conditions must be satisfied at the time the employees acquire the shares, difficulties may arise if the employees are acquiring their shares (for example by exercising their share options) following a takeover of the company concerned by another unlisted company.

Typically the trigger for exercise of options on a takeover will be the time that a general offer becomes unconditional, in which case a takeover by an unlisted company will mean that the shares acquired by the employees will not be “qualifying shares” under FA03/SCH23.

However, some schemes may be designed so that the takeover provisions take effect before a change of control, in which case the employees will acquire “qualifying shares” before the company concerned becomes under the control of an unlisted company.