ERSM20100 - Employment-related Securities and Options

Scope of legislation

Part 7 of ITEPA 2003 contains special rules about cases where:

• securities,
• interests in securities, or
• securities options

are acquired in connection with an employment (ITEPA03/S417) (see ERSM20110)

Other related provisions deal with:

• the charge on “money’s worth” received (Chapter 1 Part 3 ITEPA 2003), see ERSM25000
• residual liability to charge (Chapter 10 Part 3 ITEPA 2003 and ITEPA03/S418).

Specific employment income

All the charges in Part 7 ITEPA constitute “specific employment income", per ITEPA03/S6 (1) & ITEPA03/S7 (4). The hierarchy of terminology is set out in Chapter 2 as follows:

• Tax is chargeable on employment income which consists of “general earnings” and“ specific employment income” – ITEPA03/S6 (1)
• General earnings include “money’s worth” charge on acquisition of securities – ITEPA03/S62 (2)(b) – see ERSM20500.
• General earnings are subject to residence and domicile rules in Chapter 4 and 5 Part 2 ITEPA.
• Specific employment income includes all charges within Chapters 1 to 5 of Part 7 ITEPA – ITEPA03/S7 (4) & (6).
• Specific employment income is not subject to residence and domicile rules in Chapter 4 and 5 Part 2 ITEPA, but has it own rules on residence – see ERSM20300.

Grandfathering of older provisions

(Grandfathering allows for an exception from the new rules for pre-existing arrangements, despite a change in the rules applied to newer situations)

The following statutory provisions continue to be in force in particular circumstances:

• Provisions on share acquisitions by directors and employees in connection with public offers (ICTA88/S138 to ICTA88/S139).
• Conditional shares acquired pre-16 April 2003 continue to be subject to the original Chapter 2 Part 7 ITEPA.
• Notional loans created through shares being acquired for less than their market value before 16 April 2003 continue to be subject to Chapter 8 Part 3 ITEPA, rather than Chapter 3C Part 7.
• Restricted shares acquired before 16 April 2003 continue to be subject to ITEPA03/S449 et seq. as originally enacted and roll-over provisions continue to apply where there is a reorganisation of share capital affecting those shares (ITEPA03/S461 or ITEPA03/S462).