ERSM30350 - Restricted Securities

Schedule 22, FA 2003: exceptions

Exceptions

Employment-related securities are not ‘restricted securities’ if:

• the securities are unpaid (or partly paid) and will be forfeited if the balance is not paid up when required – provided there is nothing that might specifically prevent the payment being made – ITEPA03/S424 (1)(a),
• there is a requirement to dispose of the securities on cessation of employment for misconduct – ITEPA03/S424 (1)(b), and
• the securities are redeemable for payment – but this exemption only applies to securities before 2 December 2004 – ITEPA03/S424 (1)(c).

Example

Gary Prothero has been provided with shares by the employer but has been told that the shares will have to be sold if they are dismissed for a bad leaver reason. If this is the only provision attaching to the shares then they are not considered to be restricted as they are excluded by ITEPA2003/S424 (1)(b).

Redeemable securities

A security restricted solely by a redeemable condition is not within Chapter 2 when acquired for nil consideration before 2 December 2004, and the employee will be charged on its restricted value at acquisition. Any chargeable events before 2 December will not bring the security within Chapter 2, so no further charge will be triggered. However, chargeable events on or after that date will be within Chapter 2 and a further charge may arise (Finance (No. 2) Act 2005).

For acquisitions of redeemable securities on or after 2 December 2004 the provisions of Chapter 2, including elections, apply immediately.

Use of securities in avoidance

There is a further qualification of the exceptions from 2 December 2004. The two remaining exceptions (partly paid shares and forfeiture on cessation for misconduct) do not apply if the shares are acquired in connection with a tax or NICs avoidance scheme – ITEPA03/S424 (2).