A resident but not ordinarily resident employee may be granted a
share option in respect of a UK employment but exercise this after
they have left the UK permanently.
There may be a charge on the grant of the option under section 62 as general earnings. The charge is on the money’s worth of the option, i.e. the cash amount the employee in question could realistically be expected to obtain for the option at the grant date. Refer questions of valuation to Shares and Assets Valuation - see ERSM220080.
As regards the exercise of the option, the consideration received is:
Section 421E (2) disapplies Chapter 3C where earnings from the
employment at the time of acquisition of the securities are not
general earnings to which any of the charging provisions of Chapter
4 or 5 of Part 2 apply. This is a reference to general earnings
for the time when the acquisition occurs. The year
when any earnings are received is simply not relevant for this
purpose. An employee may well receive taxable earnings after
leaving the UK that were earned in the period before departure but
the test is whether there are any earnings within the charge to UK
tax at the time of acquisition after leaving.
If the employee’s employment changes when they leave the UK, then Chapter 3C will still apply if, in the last year in which the old employment was held, the earnings from it were general earnings. In that case ITEPA03/S421E (3) will not operate to exempt the acquisition from charge even if there are no general earnings in the year of exercise. It will be a question of fact as to whether the employment has stayed the same.
then the exercise and acquisition of shares will not give rise to a charge because of ITEPA03/S421E (2).
Henri is resident but not ordinarily resident in the UK when his
employers, Gismo Group PLC, grant him an option to purchase 1,000
shares in 3 years’ time, subject to performance and
employment conditions. He becomes entitled to exercise in Year 3,
but does not do so until Year 4. In Year 4 he acquires 1,000 shares
under the option.