ERSM70020 - Securities Acquired for less than Market Value

What is taxed?

By virtue of ITEPA03/S446Q (1) the Chapter applies if

• nothing is paid to acquire the securities at or before the time of acquisition: or
• the payment made at or before the time of acquisition is less than their market value (see ERSM70050).

Any obligation to pay more later on is ignored.

In practice there are four main kinds of transaction covered:

Partly-paid shares. For example, the agreed market value and price to be paid for a security may be £1. The employee on acquisition pays only 10p with the 90p left outstanding to be paid later. There is said to be a 90p call attached to each share.

Purchase price left outstanding. All or part of an agreed purchase price payable by the employee may be left outstanding as a loan from the vendor.

Securities acquired under options. In practice, options to acquire securities that are granted to employees who are resident and ordinarily resident in the UK at the date of grant will be taxed under Chapter 5 of Part 7. Therefore Chapter 3C charges only securities acquired under options granted to an employee who was not both resident and ordinarily resident in the UK at the time the option was granted.

Loan made to trustees who hold the shares as settled property on behalf of the employee.

Options acquired by employees not both resident and ordinarily resident

Where an employee who is not both resident and ordinarily resident in UK is granted an option there may be a charge on grant of the options in addition to a Chapter 3C charge on exercise, because there is no equivalent exemption to that at ITEPA03/S475 in Chapter 5. The charge is under ordinary money’s worth principles on the value of the option – see ERSM20500.