SE11854 - PAYE avoidance: conditional and convertible shares

Section 140A, 140D and 203FB ICTA 1988

Shares subject to risk of forfeiture or conversion - general

New rules came into effect from 17 March 1998 concerning the income tax charge arising under Schedule E on awards of shares subject to risk of forfeiture (“conditional” shares – Section 140A) or shares capable of conversion (“convertible” shares – Section 140D) to another class of share (see Share Schemes Manual 4.1).

Depending on the circumstances the Schedule E charge can arise:

• when the risk of forfeiture is lifted
• when the shares are sold
• when the shares are converted into a different kind of share
• on the award of the shares.
• The Schedule E rules took effect from 17 March 1998 and, where the shares concerned are readily convertible assets, PAYE applies from 6 April 1998. This means that PAYE does not apply to a Schedule E charge arising under these provisions in the short period between 17 March and 6 April 1998.