BIM44405 - Specific deductions - employee share schemes: Providing shares under FA03/SCH23 - convertible shares from 1/9/2003 - 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 |
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|
Market value of loan stock with conversion rights |
£1200 |
|
Market value of loan stock without conversion rights |
£1000 |
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|
|
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 |
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|
Market value of shares with conversion rights is |
£1100 |
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Market value of shares without conversion rights is |
£1000 |
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|
|
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)) |
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