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Finance Act 1966

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25Directors and employees of companies granted rights to acquire shares

(1)Where on or after 3rd May 1966 a person realises a gain by the exercise, or by the assignment or release, of a right to acquire shares in a body corporate obtained by that person as a director or employee of that or any other body corporate he shall be chargeable to income tax under Schedule E on an amount equal to the amount of his gain as computed in accordance with this section.

(2)Subject to subsection (8) below—

(a)the gain realised by the exercise of any such right at any time shall be taken to be the difference between the amount that a person might reasonably expect to obtain from a sale in the open market at that time of the shares acquired and the amount or value of the consideration given whether for them or for the grant of the right, and

(b)the gain realised by the assignment or release of any such right shall be taken to be the difference between the amount or value of the consideration for the assignment or release and the amount or value of the consideration given for the grant of the right,

(a just apportionment being made of any entire consideration given for the grant of the right to acquire those shares and other shares or otherwise for the grant of the right to acquire those shares and for something besides) :

Provided that neither the consideration given for the grant of the right nor any such entire consideration shall be taken to include the performance of any duties in or in connection with the office or employment by reason of which the right was granted, and no part of the amount or value of the consideration given for the grant shall be deducted more than once under this subsection.

(3)Subject to subsection (4) below a person shall, in the case of a right granted by reason of his office or employment, be chargeable to tax under this section in respect of a gain realised by another person—

(a)if the right was granted to the other person, or

(b)if the other person acquired the right otherwise than by or under an assignment made by way of a bargain at arm's length, or if the two are connected persons at the time when the gain is realised,

but in a case within paragraph (b) of this subsection the gain realised shall be treated as reduced by the amount of any gain realised by a previous holder on an assignment of the right.

(4)A person shall not be chargeable to tax by virtue of subsection (3)(b) above in respect of any gain realised by another person if the first-mentioned person was divested of the right by operation of law on his bankruptcy or otherwise, but the other person shall be chargeable to tax in respect of the gain under Case VI of Schedule D.

(5)If a right to acquire shares in a body corporate is assigned or released in whole or in part for a consideration which consists of or comprises another right to acquire shares in that or any other body corporate, that right shall not be treated as consideration for the assignment or release, but this section shall apply in relation to it as it applies in relation to the right assigned or released and as if the consideration for its acquisition did not include the value of the right assigned or released but did include the amount or value of the consideration given for the grant of the right assigned or released so far as that has not been offset by any valuable consideration for the assignment or release other than the consideration consisting of the other right.

(6)If as a result of two or more transactions a person ceases to hold a right to acquire shares in a body corporate and he or a connected person comes to hold another right to acquire shares in that or any other body corporate (whether or not acquired from the person to whom the other right was assigned) and any of those transactions was effected under arrangements to which two or more persons holding rights in respect of which tax may be chargeable under this section were parties, those transactions shall be treated for the purposes of the last foregoing subsection as a single transaction whereby the one right is assigned for a consideration which consists of or comprises the other right. This subsection applies in relation to two or more transactions whether they involve an assignment preceding, coinciding with, or subsequent to, an acquisition.

(7)This section applies in relation to rights granted at any time in the year 1965-66 or any earlier year of assessment as well as in relation to rights granted in any later year of assessment, but subject to the following subsection.

(8)The amount of the gain realised at any time by the exercise, or by the assignment or release, of a right to acquire shares granted before 3rd May 1966 shall not exceed the difference between the market value of those shares at that time and their market value on 3rd May 1966 (and no gain shall be so realised unless the later value exceeds the earlier value).

(9)For the purposes of this section a right to acquire shares is obtained by a person as a director or employee of a body corporate—

(a)if it is granted to him by reason of his office or employment as a director or employee of the body corporate who is chargeable to tax in respect of that office or employment under Case I of Schedule E, or

(b)if the right is assigned to him and was granted by reason of any such office or employment of his to some other person,

and paragraph (a) above shall apply to a right granted by reason of a person's office or employment after he has ceased to hold it if it would apply to a right so granted in the last year of assessment in which he did hold it.

(10)For the purposes of this section—

(a)references to the release of a right include references to agreeing to the restriction of the exercise of the right,

(b)any question whether a person is connected with another shall be determined in accordance with paragraph 20 of Schedule 9 to the Finance Act 1962,

(c)" director " and " employee " have the meanings given by section 390(1) of the Income Tax Act 1952,

(d)in so far as the context permits, " shares" includes stock,

and this section shall apply in relation to any securities (as defined in paragraph 7(1) of Schedule 11 to the Finance Act 1965) issued by a body corporate as it applies in relation to shares in the body corporate.

(11)Schedule 4 to this Act shall apply for the purposes of this section and shall be construed as if contained in this section.

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