ERSM70210 - Securities Acquired for less than Market Value

Interaction with other provisions

Money’s worth charge on acquisition

ERSM20500 makes it clear that normally the money’s worth and the market value per TCGA92/S272 will be the same. Where market value exceeds money’s worth value there can be an additional charge under Chapter 3C on the excess.

Other Part 7 ITEPA charges

See also ERSM70030 for priority of charge of other provisions, ERSM70100 for interaction with restricted securities, and ERSM70410 for interaction with Chapter 5 on securities options.

University spin-outs – Chapter 4A

The main guidance for university spin-outs is at ERSM100000 et seq.

The spinout legislation uses the expression “market value” as a measure of value whereas other legislation that taxes non-cash employment income (ITEPA03/S62) uses “money’s worth”. There is a difference between the two valuation standards but in practice it is unlikely to have a significant effect in the vast majority of cases for Chapter 4A. HMRC is likely to conclude in actual valuations that the price is the same under both tests. If a significant difference does arise in a particular case, HMRC would need to consider whether an attempt had been made to exploit that difference. See ERSM100430.

Approved schemes

FA 2004 repealed section ITEPA03/S421G from 18 June 2004. The effect is that shares acquired under approved schemes are now subject to Chapters 2 to 4 of Part 7 of ITEPA 2003. When shares are acquired under approved schemes, they are acquired at an under- value within Chapter 3C of Part 7 and if there is no Income Tax charge on acquisition, Chapter 3C could be argued to apply.

HMRC cannot confirm that they will never take a Chapter 3C charge for shares acquired under approved schemes. However, provided that the approved scheme is not involved in avoidance then the charge under Chapter 3C will not be taken. If avoidance is an issue then a charge may be pursued.