Denise is a French citizen who works in the UK for 3 years from
1 July 2008 to 30 June 2011. Before her arrival in the UK she
receives a grant of an option over shares on 1 June 2008 in respect
of her forthcoming UK assignment. This vests on 30 November 2010
while she is in the UK but she doesn’t get round to
exercising her option until 3 months after leaving the UK (October
2011) when she is back in France. She sells her shares immediately
upon exercising the option.
Extra Statutory Concession A11 means that Denise is treated
as not UK-resident in that part of 2008/09 when the option was
acquired, so Chapter 5 does not apply. The option is a “legal
option”, so that when the shares are acquired on the exercise
of the option, they are not “money’s worth”
general earnings (See
ERSM70410). On exercise of the option,
she has acquired securities for less than their market value and is
liable to a charge under Chapter 3C of Part 7 of ITEPA, because, in
the year of departure, the split year treatment of ESC A11 is not
applied to the charge under that Chapter. (See
ERSM70460). As the securities were
acquired pursuant to a securities option, the relevant period is
from grant to vest in accordance with ITEPA03/S41B(3)(a). (See
ERSM160735.) If she was not ordinarily
UK-resident for at least one of 2008/09, 2009/10 and 2010/11 then
Denise may make a claim for the remittance basis to apply to the
Chapter 3C income. If she was ordinarily UK resident throughout her
time in the UK, then she will not be eligible to claim the
remittance basis in respect of earnings (or specific employment
income) from this employment and there will be no apportionment
under Chapter 5A of Part 2 of ITEPA 2003.
As Denise was not resident in the UK when the chargeable
event occurred, the French might also tax the gain. The UK has a
Double Taxation Agreement with France so we would apportion the
amount charged by Chapter 3C of Part 7 of ITEPA 2003 under Article
15 on the basis of workdays between grant and vest – in this
case it appears that the period between grant and vest was spent
almost wholly in the UK. Denise would have to demonstrate that
duties were performed in France in the grant to vest period. In the
circumstances of this case, the operation of the apportionment
rules of Chapter 5A (if they applied) would mirror the double
taxation treaty time apportionment rules. As the UK would only seek
to tax the amount of the option gain that relates to UK work, any
amount that the new remittance basis rules sought to subject to a
UK tax charge on the remittance basis would be excluded by treaty
time apportionment
