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Income Tax (Earnings and Pensions) Act 2003

Chapter 9: Taxable benefits: disposals of shares for more than market value

781.This Chapter deals with the benefits which may arise from certain disposals of shares. It derives from those parts of section 162 of ICTA which deal with the disposal of shares at a price greater than their market value.

Section 198: Shares to which this Chapter applies

782.This section sets out the subject of the legislation. It derives from parts of sections 162(1), (6) and (9) and 168(3) of ICTA.

783.Subsection (1) describes the circumstances which bring shares within the provisions of this Chapter.

784.Subsection (2) labels the shares “employment-related shares”.

785.Subsection (3) makes it clear that the employment-related shares can be in a company other than the employer. It derives from section 162(1)(a).

786.Subsection (4) applies to determine, in a similar way to the “provision” of other benefits, whether the right or opportunity to acquire shares made available by the employer is “by reason of the employment”. This change in approach is explained more fully in Note 21 in Annex 2. It derives from section 168(3)(b).

Section 199: Disposal for more than market value: amount treated as earnings

787.This section sets out the circumstances in which a benefit arises and how it is to be chargeable to tax. It derives from parts of section 162(6), (7), (8), and (9) of ICTA.

788.Subsection (1) applies the provisions of the section in the case of a disposal of the employment-related shares. The words in section 162(6)(a) of ICTA “by surrender or otherwise” have not been used as they are unnecessary.

789.Subsection (2) derives from section 162(8) of ICTA. It prevents chargeability when the disposal takes place after the death of the employee. In rewriting this the words “whether by his personal representatives or otherwise” have been left out. These words do not add anything and are unnecessary.

790.Subsection (3) provides a formula to arrive at the amount to be treated as earnings. If any part of that amount is earnings by virtue of section 62 of this Act any possible double charge is prevented by section 64(1) and (2) of this Act.

791.Subsection (4) derives partly from section 162(7) of ICTA. The references to the employment becoming excluded employment are new. Note 24 in Annex 2 explains why they are necessary.

792.Subsection (5) explains how to arrive at the market value of an interest in shares.

Section 200: Minor definitions

793.This section defines various terms used in this Chapter. It derives from section 162(1), (9) and (10) of ICTA.

794.The meaning of “market value” is defined. The wording of the definition has been changed to bring it into line with definitions of market value used elsewhere in this Act. See Note 23 in Annex 2.

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