ERSM20220 - Employment-related Securities and Options

'By reason of employment' - exception for family or personal relationships

Exceptionally, the deeming provision is removed where:

1. the person by whom the right or opportunity is made available is an individual, and
2. the right or opportunity is made available in the normal course of the domestic, family or personal relationships of that person.

We take a common-sense view of this exception. It would clearly apply if a father, on reaching retirement, hands over all the shares in his family company to his son and daughter simply because they are his children, even if they are both also employees of the family company.

However, it is a question of fact, and it is possible for the employment, rather than the family relationship, to be the reason for the gift, and where that is the case the shares will be employment-related securities.

This may well be the case where large numbers of employees were given shares and they included a son and a daughter of the proprietor.

The same considerations would apply where a parent with a controlling interest in the family company arranged for the company to issue a tranche of shares to his/her offspring.

Personal relationships can also include friendships and it is not unknown for a proprietor to pass on his business to a long-time employee with whom he has developed close personal ties. The principal question to be asked is would an employer trying to reward or incentivise the employee have passed over such shares to him/her, or is the reason more personal than an employer/employee relationship.

We will accept that where:

• the shares or option are provided by an individual, or a company where that company is controlled by an individual or a family,
• that individual or family have procured the award of the securities or grant of the option,
• there was a demonstrable relationship between the individual or family and the employee, and
• there was no element of remuneration in the award or grant (in other words, the normal course of familial or personal relationship will need to be demonstrated, as against the desire of an employer to reward an employee),

the award or grant comes within the exemption. See ITEPA03/S421B (3) and ITEPA03/S471 (3).