ERSM30507 - Restricted securities: exchanges of restricted securities on or after 17 July 2014 - application of the chapter 2 charging provisions

Old shares remain within s423(2) at exchange

Effect of ITEPA03/S430A(11) to (17)

Subsections (11) to (17) are broadly concerned with ensuring that:

  • where there are one or more exchanges of forfeitable securities, the effect of the 5 year limit in ITEPA03/S425(1)(b) is maintained, and it is not possible to circumvent this by having successive acquisitions of such securities with cumulative periods of forfeiture extending beyond 5 years; and
  • where forfeitable securities are exchanged for non-forfeitable securities this triggers a chargeable event within section 427.

Detail

Where shares that were within the exemption provided by ITEPA03/S425(2) are still subject to the forfeiture restriction which made them exempt at the time that they are exchanged, then subsections (12) to (14) apply.

(Remember, if an election was made under either ITEPA03/S425(3) or ITEPA03/431(1), then the old securities will not be within the ITEPA03/S425(2) exemption, so subsections (12) to (14) will not apply.)

ITEPA03/S430A (12) provides that if any of the new securities are not forfeitable, then on acquisition they are:

  • treated as if they were forfeitable; and
  • the deemed forfeiture restriction is treated as lifted immediately after the exchange, so that there is a chargeable event in respect of the new securities at that time.

ITEPA03/S430A(13) provides that subsection (14) applies if any of the new securities are subject to a forfeiture restriction that is still in place 5 years after the acquisition of the original securities.

In that case ITEPA03/S430A(14) provides that the forfeiture restriction is treated as being removed on the 5th anniversary of the acquisition of the old securities, and that a chargeable event within section 428 therefore arises.

Subsections (15) to (17) ensure that the rollover provisions work for cases where there are successive exchanges of restricted securities. ITEPA03/S430A(15) provides that subsection (16) applies if at the time of exchange the old securities are forfeitable and they themselves had been new securities to which subsections (13) and (14) had applied.

ITEPA03/S430A(16) provides that:

  • subsections (12) to (14) apply to the new securities;
  • subsection (12) is read so that it treats the new securities as subject to the same restrictions as the previously-new securities (and those restrictions are treated as immediately being lifted); and
  • the references in subsections (13)(b) and (14) to the old securities mean the original restricted securities, prior to the first exchange.