ERSM30080 - Restricted Securities

Taxation treatment: shares acquired between 26 October 1987 and 15 April 2003: exemption from change in the rights

Provided that the conditions relating to shareholdings set out in ERSM30090 are satisfied the following events will not be chargeable events and no charge to tax on employment income will arise in respect of them ITEPA03/S450 (as originally enacted):

• Where all shares of a class are subject to a restriction, the removal or variation of the restriction in the case of all the shares in the class.
• The creation or variation of a right in the case of all the shares in a class
• The imposition of a restriction or the removal of a right in the case of all the shares of a class.

For the first two of these events, the class of shares in question will be that in which the employee holds the shares. For the third event, the class of shares in question will be a class other than that in which the employee holds the shares.

The provisions aim to exclude from a charge to income tax value-shifts which benefit the class of shareholders as a whole. In this sort of situation any increase in value is coming to the employee because he or she is a shareholder and not because he or she is an employee. But it is necessary to be sure that the employee's shares are not in a class created specifically for employees. If they are, employee benefits could easily be dressed up as shareholder benefits. So the conditions set out in ERSM30090 must be met too.