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Income Tax (Earnings and Pensions) Act 2003

Part 6: Requirements etc. relating to share options
Paragraph 27: Requirements etc. relating to share options: introduction

3316.This is another introductory paragraph, based on paragraph 1(1) of Schedule 9 to ICTA. It lists the requirements relating to share options.

Paragraph 28: Requirements as to price for acquisition of shares

3317.This paragraph derives from paragraph 25 of Schedule 9 to ICTA; and contains the rule that the exercise price for the option must be not less than 80% of the market value of the shares at the time of the grant of the option. Sub-paragraph (2) allows this price to be fixed in advance of the grant if agreed between the Inland Revenue and the scheme organiser.

3318.The decision was taken to retain “manifestly” in sub-paragraph (1). The word is interpreted to mean variations of “evidently”, “clearly” and “obviously”.

3319.Sub-paragraph (3) extends the scope for changes, which are permitted to occur as a result of a variation in the share capital. Paragraph 25 of Schedule 9 to ICTA refers only to price, but in reality the number and description of the shares may be affected. This and the necessity of getting Inland Revenue approval in advance (sub-paragraph (4)) have been recognised in practice. See Change 169 in Annex 1.

Paragraph 29: Share options must not be transferable

3320.This paragraph provides that the participant may not transfer share options. It derives from part of paragraph 22 of Schedule 9 to ICTA.

3321.There is a new sub-paragraph (2) which provides a signpost to paragraph 32 which deals with the position after the death of a participant.

Paragraph 30: Time for exercising options: general

3322.This paragraph derives from the remaining parts of paragraphs 17 and 22 of Schedule 9 to ICTA. It sets out the start and the end of the period during which an option must be exercised, and then indicates the various exceptions to this rule.

Paragraph 31: Requirement to have a “specified age”

3323.This paragraph, which derives from paragraph 8A of Schedule 9 to ICTA, explains what is meant by the expression “specified age” and indicates the paragraphs of this Schedule where this definition is relevant.

Paragraph 32: Exercise of options: death

3324.This paragraph derives from paragraph 18 of Schedule 9 to ICTA. The paragraph allows the exercise of an option after the option holder’s death.

3325.The reference to the period of six months after the bonus date in sub-paragraph (b) now makes it clear that this rule applies to a death on the bonus date.

Paragraph 33: Exercise of options: reaching specified age without retiring

3326.This paragraph applies where an option holder reaches the specified age, but has not retired. The paragraph derives from paragraph 20 of Schedule 9 to ICTA and also part of paragraph 22 of that Schedule.

Paragraph 34: Exercise of options: scheme-related employment ends

3327.This paragraph derives from paragraphs 19 and 21(1)(e) of Schedule 9 to ICTA, and draws on material in paragraph 22 of that Schedule.

3328.The paragraph deals with the various circumstances in which an employee may leave “scheme-related employment”, a term defined in sub-paragraph (7).

3329.The effect of the various situations has been clarified and one more significant revision to the situation set out in former paragraph 21(1)(e). This is to link new sub-paragraph (5) to sub-paragraph (4), to emphasise that this provision is required to enable the option to be exercised within the first three years (though income tax relief is not available in these circumstances).

3330.Paragraph 21(3) of Schedule 9 to ICTA is spent.

Paragraph 35: Time when scheme-related employment ends

3331.This derives from paragraph 23 of Schedule 9 to ICTA. The import of the definition of associated company derives from section 187(2) of ICTA.

3332.This is in part an anti-avoidance provision and complex in application. The position has been clarified: an employee is not regarded as leaving the group scheme until that employee has left any associated company of the scheme organiser.

3333.As regards sub-paragraph (3), the reference in paragraph 23 of Schedule 9 to ICTA to a company under the grantor’s control has been omitted, because such a company is also an “associated company”.

3334.There is a new sub-paragraph (5), to make it quite clear that paragraph 32 of this Schedule, rather than the rules in this paragraph, govern the situation after the death of an option holder.

Paragraph 36: Exercise of options: employment in associated company at bonus date

3335.This paragraph derives from paragraph 21(1)(f) of Schedule 9 to ICTA. It enables a person who, on the bonus date, is an employee of a company that is an associated company but not a constituent company to exercise the options within six months of that date. Paragraph 21(4) has not been rewritten. It is covered by the transitional provisions in Schedule 7 to this Act.

Paragraph 37: Exercise of options: company events

3336.This paragraph derives from the remaining parts of paragraph 21 of Schedule 9 to ICTA. It deals with a number of events, which can occasion early exercise of an option.

3337.This paragraph brings out more clearly when the relevant date occurs in relation to these events. The expression “the relevant date” is introduced in sub-paragraph (1).

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