CG56339 - Employment-related securities: employee: employment income: restricted securities

TCGA92/S149AA

TCGA92/S149AA prevents the market value rule applying to the acquisition of restricted employment-related securities (including shares subject to the risk of forfeiture). See CG56321. The acquisition cost for capital gains purposes is instead built up from the actual cost and amounts chargeable to Income Tax. For the definition of restricted securities see Chapter 2 Part 7 ITEPA03.

Sections 430 and 431 ITEPA03 permit the employer and employee to elect to ignore restrictions on employment-related securities. The effect of such an election is that any (further) appreciation in the value does not give rise to an amount counting as employment income and is included instead in the computation of a capital gain accruing on a disposal of the security. It is thus quite possible for two employees receiving the same number of shares in the same employer company to have different amounts constituting earnings under S62 ITEPA03 and counting as income under Part 7 ITEPA03.

The capital gains acquisition cost of restricted employment-related securities (including shares subject to the risk of forfeiture) acquired on or after 1 September 2003 is, by TCGA92/S149AA

  • their actual cost at the date of acquisition together with
  • any amount which constituted earnings in respect of their acquisition under s62 ITEPA03 (for disposals after 11 March 2008 exempt income is ignored. For disposals after 5 April 2015 earnings which were not charged to UK tax, but which would have been exempt if they had been, are also ignored) and
  • amounts counting as income under Chapter 2 Part 7 ITEPA03 on or before the disposal. See TCGA92/S119A and CG56328.

See the examples at CG56340 and CG56341.

In the case of shares which on acquisition became employee shareholder shares (see CG56700+) the consideration for the acquisition is (subject to the operation of s119A) equal to the amount that constituted earnings under s62 or s226A ITEP03 and no other consideration is treated as having been given for the acquisition of the shares.

For shares or securities acquired before 1 September 2003 the starting point for the acquisition cost is the market value subject to restrictions and there is no addition for an amount constituting employment income under S62 ITEPA or S19 ICTA88. FA03 transitional provisions may apply in relation to acquisitions in 2003.

The capital gains acquisition cost of restricted shares (other than shares subject to the risk of forfeiture, see CG56349) acquired before 16 April 2003 is

  • the market value subject to the restrictions at the date of acquisition together with
  • any amount chargeable to Income Tax under Sections 77-89 FA88, on an increase in the value of shares after they are acquired and on or before the disposal. (From 6 April 2003 Chapter 4 Part 7 ITEPA03 replaces Sections 77-89 FA88.) See TCGA92/120, TCGA92/S119A, and CG56328-9.

The capital gains acquisition cost of restricted employment-related securities (other than shares subject to the risk of forfeiture, see CG56349) acquired before 1 September 2003 but after 15 April 2003 is

  • the market value subject to the restrictions at the date of acquisition together with
  • any amount counting as income on or before the disposal under Chapter 2 Part 7 ITEPA03 on or after the 1 September 2003. See TCGA92/S119A.