There are many circumstances where, even if securities have been acquired for less than their market value, no charge will arise under Chapter 3C, because Chapter 3C is a sweeping up provision over which other provisions take priority.
The application of ITEPA03/S446T and ITEPA03/S446V means that the following provisions take priority of charge:
However, if the amount charged under Chapter 3C would be greater than that charged under any of those provisions, the excess is chargeable under Chapter 3C.
Chapter 3C is specifically disapplied in certain circumstances:
| ERSM20270 |
| ERSM20280 |
| ERSM20290 – see example below |
| ERSM20300, but see also ERSM70400. |
| ERSM20370 |
YL Ltd has 100 ordinary shares held by two founder-directors,
Yeoh and Lig. Yeoh and Lig decide to retire and sell their shares
to two managers, Webster and Rafferty. As the company is very
profitable it would be too expensive for Webster and Rafferty to
buy the shares outright even though all parties agree full market
value will be payable. So 50% of the amount due is left on account
to be paid in instalments over the following 5 years.
Webster and Rafferty have acquired shares for less than their
market value but under ITEPA03/S446R:
the employment-related securities are shares (subsection
(1)(a) test) all the shares are acquired for less than market value
(subsection (1)(b) test) no avoidance is involved (subsection (1A)
test) company is employee-controlled (subsection (3) test) All
tests are satisfied, so there is no charge under Chapter 3C.
See also
ERSM70040 on relief from Chapter 3C
where there is a debt created to buy shares in a close company.
