ERSM20290 - Employment-related securities and options: exclusions: certain control situations

In the following Chapters, there are exemptions from the charge where certain control tests are satisfied. The chapters and their respective relieving provisions are, as from 2 December 2004:

* Chapter 2 (restricted securities) ITEPA03/S429
   
* Chapter 3 (convertible securities) ITEPA03/S443
* Chapter 3C (securities acquired for less than market value) ITEPA03/S446R
* Chapter 4 (post-acquisition benefits from securities) ITEPA03/S449

The relief is subject to the following tests:

  1. the employment-related securities are shares (or an interest in shares) in a company of a class;
  2. all the company’s shares of that class:
* are restricted in the same way (Chapter 2), or
* are all convertible securities (Chapter 3), or
* were all acquired for less than market value (Chapter 3C), or 
* all give rise to a similar benefit (Chapter 4);
  1. nothing has been done affecting the shares as part of a scheme or arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions;
  2. all the company’s shares of the class (other than the employment-related securities) are affected by an event similar to that which is a chargeable event in relation to the employment-related securities, (Chapters 2 and 3 only); and,
  3. at the relevant time, either:

 

 

  1. the company is employee-controlled by virtue of holdings of shares of the class,
or
  1. the majority of the company’s shares of the class are not employment-related securities.

Employee-controlled

A company is “employee-controlled”, per ITEPA03/S421H, by virtue of shares of a class if:

  • the majority of the company’s shares of that class (other than any held by or for the benefit of an associated company) are held by or for the benefit of employees of the company or a company controlled by the company, and
  • those employees are together able as holders of the shares to control the company.

“Employee” includes a person who is to be or has been an employee.

“Associated company” has the same meaning as in CTA2010/S449.

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Earlier versions of exclusion

Up to 6 May 2004

There was no avoidance test (c) and the employment-related securities test (e.2) was:

the majority of the company’s shares of the class are not held by or for the benefit of any of the following—

* employees of the company,
* persons who are related to an employee of the company,
* associated companies of the company,
* employees of any associated company of the company, or
* persons who are related to an employee of any such associated company.

For this test a person is related to an employee if:

* the person acquired the shares pursuant to a right or opportunity available by reason of the employee’s employment, or
* the person is connected with a person who so acquired the shares, or with the employee, and acquired the shares otherwise than by a disposal made by way of a bargain at arm’s length from the employee or another person who is related to the employee.

From 7 May 2004 to 1 December 2004

The avoidance test (c) was based on the motive at time of acquisition of shares rather than at any time.