The notional loan is treated as discharged under section 446U when
For an explanation of “associated person” see
If the loan is discharged as a result of one of the events above then the amount of the notional loan outstanding immediately before the event counts as employment income for the relevant year.
See ERSM70400 for the effect of residence status on liability.
The relevant tax year is the year that the loan is treated as discharged.
The notional loan can also be treated as discharged when;
In neither of these circumstances will there be any employment income arising.
The acquisition of securities that are subject to a risk of
forfeiture (which fall within ITEPA03/S425 (2)) will not be
treated as creating a notional loan under Chapter 3C at the time of
ERSM70100, but neither are they likely
to be so treated on lifting of the restriction in normal
circumstances (i.e. there is no partly-paid element).
Providing the employee is ordinarily resident in the UK, Chapter 2 (restricted securities) applies to the disposal of forfeitable securities. So where:
Chapter 3C (on acquiring securities at less than market value) will not be applied.
Where partly-paid shares are sold for their market value taking into account the potential call on them, the amount of the notional loan equal to the call is still chargeable even though this obligation is taken over by the purchaser of the shares. See Example 3 in ERSM70120.
In 2005/6 Yvonne Mayor acquires 10,000 ordinary shares with
fully paid up market value of £10,000. Her employer allows her
to pay 10p per share, leaving outstanding a call of 90p per share.
Mayor pays tax on the notional loan of £9,000 each year and in
2010/11 sells the shares, still partly-paid, for £5,000.
The sale of the shares constitutes a discharge of the notional loan of £9,000, which is charged as earnings from employment for 2010/11 under ITEPA03/S446U.
The CGT computation on disposal will be on the following lines:
|Chapter 3C charge on discharge of notional loan TCGA92/S119A (3)(c)||(£9,000)|