ERSM30090 - Restricted Securities: Shares acquired before 16 April 2003: exemption from charge: conditions to be met

• The majority of the shares in the class in which the employee has acquired shares must be held otherwise than by, or for the benefit of

  • directors or employees of the company
  • an associated company, or
  • directors or employees of an associated company.
• The company is employee-controlled by virtue of the holdings of shares of the class in which the employee acquired shares. (See ERSM20290 for a definition of an employee-controlled company.)
• The company is a subsidiary, which is not a dependent subsidiary, and it has only one class of shares.

It is important to note that, for the purposes of the above conditions, the class of shares being looked at is always the class in which the employee holds the shares. This is because the charge to tax is on shifts of value into shares of that class. But these may result from changes to the rights or restrictions relating to another class of shares.

The first condition above is to establish whether an increase in the value of shares of the class in which the employee has a holding is designed to benefit employees, or is simply a benefit to the ‘outsiders’ who form the main body of holders of shares of that class.

Where a company is controlled by its employees, directors and employees will be in the majority, but value shifts may be designed to benefit only a selected group of employees.

Where a company is a subsidiary company, directors and employees will always be a minority. But if the subsidiary has more than one class of shares there may be a movement of value from the shares held by the parent into the shares held by the directors and employees. Shifts of value from shares in the parent to shares in the subsidiary, are covered by the ‘dependent subsidiary’ rules. Only shares in ‘independent’ subsidiaries are within the scope of the post-acquisition charge.