ERSM20370 - Employment-related Securities and Options

Exclusions: public offers

Pre-18 June 2004

Up to 17th June 2004 the following chapters do not apply in relation to employment-related securities that are shares acquired under the terms of an offer to the public:

• Chapter 2 restricted securities
• Chapter 3 convertible securities
• Chapter 3A securities with artificially depressed market value
• Chapter 3B securities with artificially enhanced market value
• Chapter 3C securities acquired for less than market value
• Chapter 3D securities disposed of for more than market value
• Chapter 4 post-acquisition benefits from securities

18 June 2004 onwards

As from 18 June 2004 only the following chapters do not apply in relation to employment- related securities that are shares acquired under the terms of an offer to the public:

• Chapter 2 restricted securities
• Chapter 3 convertible securities
• Chapter 3C securities acquired for less than market value

These Chapters are acquisition charges intended to charge benefits passed to employees through their shareholdings (unless the employee-control exemption applies – see ERSM20290). It is therefore appropriate to give exemption from any charge under these Chapters where shares are acquired under the terms of an offer to the public. This change applies to shares awarded before and on or after 18 June 2004 (ITEPA03/S421F).

No relief if avoidance

There is a further “purpose test” so even those chapters are not disapplied if the main purpose (or one of the main purposes):

• of the arrangements under which the right or opportunity under which the shares were acquired, or
• for which the shares are held,

is the avoidance of tax or national insurance contributions (ITEPA03/S421F (1A))

Priority share allocation to employees

Where there is exemption for priority share allocations to employees under ITEPA03/S544 any acquisition made under either the public offer or the employee offer is to be treated as made under the terms of an offer to the public.

This applies whether or not there is any benefit within subsection (2) of ITEPA03/S544 (benefit derived from entitlement to priority allocation exempt from income tax).