ERSM30220 - Restricted Securities
Conditional shares acquired between 17 March 1998 and 15 April
2003: scope of legislation
Conditional shares are defined in the legislation at
ITEPA03/S424 (as originally enacted). They are more normally
referred to as restricted shares subject to forfeiture, or simply
forfeitable shares. Any reference to shares includes a reference to
securities, but not the other way round (ITEPA03/S434 as originally
enacted).
The definition of conditional shares in the legislation
refers to shares which are subject to conditions that they may
revert or be forfeit and as a result the person with the beneficial
interest will cease to have any interest in the shares.
Exceptions
There are some important exceptions within the definition. The
following shares are not forfeitable shares:
- shares for which on transfer, reversion or
forfeiture the holder of the beneficial interest will receive full
market value (ITEPA03/S424 (1) as originally enacted),
- unpaid or partly paid shares which may be
forfeit for non-payment of calls (ITEPA03/S424 (2)(a) as
originally enacted),
- shares which under the Articles of
Association must be offered for sale on leaving employment
(ITEPA03/S424 (2)(b) as originally enacted),
- It was thought initially that this exemption
applied only to shares in UK companies. Tax Bulletin 60 (TB60
published August 2002) outlined our change of view that this now
extends to foreign companies with documents equivalent to an UK
articles of association. TB60 gives detailed advice on dealing with
transitional arrangements for taxpayers who followed our previous
practice.
- We accept that the articles of association require
the shares to be offered for sale or transfer even if this is at
the discretion of the company to initiate or to waive.
- shares which may be required to be sold or
transferred if the employee ceases to be so employed as a result of
misconduct (ITEPA03/S424 (2)(c) as originally enacted),
and
- redeemable securities
(ITEPA03/S424 (2)(d) as originally enacted).
