BIM44405 - Specific deductions: Employee share
schemes: periods starting on or after 1 January 2003: providing
shares under FA03/SCH23: convertible shares: from 1 September 2003:
examples
Example 1 - convertible securities which convert into
qualifying shares
Facts
| 1/4/2004 | Employee is given
£1000 loan stock, with interest at 4%, which can be converted
into 1000 £1 ordinary shares after 5 years | |
| Market value of loan
stock with conversion rights | £1200 |
| Market value of loan
stock without conversion rights | £1000 |
| | |
| 1/4/2009 | Conversion takes place;
market value of shares acquired | £2500 |
| Market value of loan
stock without conversion rights | £1100 |
| No consideration given by
employee to convert into shares | |
Employment income tax charges
| 2003/04 | Income tax charged
on | £1000 |
| 2008/09 | Income tax charged on
£2500 – £1100 = | £1400 |
Deductions given under FA03/SCH23
| a.p.e 31/12/04 | No deduction (the income
tax charge relates to acquisitions of loan stock, not qualifying
shares) | |
| a.p.e 31/12/09 | Deduction | £1400 |
Example 2 - qualifying shares which convert into other
qualifying shares
Facts
| 1/4/2004 | Employee is given 1000
convertible qualifying shares | |
| Market value of shares
with conversion rights is | £1100 |
| Market value of shares
without conversion rights is | £1000 |
| | |
| 1/4/2007 | Conversion takes place;
market value of new shares is | £2400 |
| Market value of old
shares without conversion rights is | £2000 |
| Consideration given by
employee to convert shares | £100 |
Employment income tax charges
| 2003/04 | Income tax charged
on | £1000 |
| 2006/07 | Income tax charged on
£2400 – £2000 – £100 = | £300 |
Deductions given under FA03/SCH23
| a.p.e 31/12/04 | Deduction | £1000 |
| a.p.e 31/12/07 | Deduction | £300 |
Example 3 - qualifying shares which convert into non-qualifying
shares
If the shares acquired on conversion in Example 2 were not
qualifying shares for the purposes of FA03/SCH23, the income tax
position would remain the same, but the deductions given to the
employing company under FA03/SCH23 would be:
| a.p.e 31/12/04 | Deduction | £1000 |
| a.p.e 31/12/07 | No deduction (the income
tax charge relates to the acquisition of non-qualifying shares -
FA03/SCH23/PARA22C (11)) | |
