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Income Tax (Earnings and Pensions) Act 2003

Section 424: Meaning of interest being “only conditional”

1842.Subsection (1), which derives mainly from section 140C(1) of ICTA, defines when an interest in shares is “only conditional”. While section 140C of ICTA says “for the purposes of sections 140A and 140B”, the definition is applied more widely by section 140H(5) of ICTA. Hence the definition is now applied “for the purposes of this Chapter”.

1843.Subsection (2) summarises the exceptions from subsection (1) which prevent the interest being only conditional so that the normal charge as earnings applies on acquisition. The exceptions derive from section 140C (1A), (2), (3), (3A) and (4) of ICTA.

1844.Subsection (3) derives from section 140C(5) of ICTA and expands on the circumstances falling within subsection (1)(a). They are not regarded as including cases where the terms on which the employee is entitled to the interest allow the employee to require a person to acquire the interest at undervalue.

1845.Subsection (4) relates back to subsection (1)(b) and derives from the closing words of section 140C(1) of ICTA.

1846.Subsection (5) is new and reflects the latest legal advice that the term “articles of association” includes foreign equivalents, thus widening the circumstances in which an interest is not “only conditional”. See Note 44 in Annex 2.

1847.Subsection (6) is supplementary to subsections (2)(b) and (c) and derives from parts of section 140C(3) and 140C(3A) of ICTA.

1848.Subsection (7) derives from section 140(6) of ICTA.

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