Income Tax (Earnings and Pensions) Act 2003

Grant of replacement option

41 (1) This paragraph applies if both of the following conditions are met in connection with a company reorganisation.

(2) The first condition is that the holder of a qualifying option, by agreement with the acquiring company, releases the holder’s rights under that option (“the old option”) in consideration of the granting to him of rights (“the new option”) which are equivalent but relate to shares in the acquiring company.

(3) The second condition is that the requirements of the following paragraphs are met—

• paragraph 42 (period within which replacement option must be granted), and

• paragraph 43 (further requirements to be met as to replacement option).

(4) If this paragraph applies, the new option is to be treated for the purposes of the EMI code as a “replacement option”.

(5) Except where the contrary is indicated—

(a) references in the EMI code to a qualifying option include a replacement option, and

(b) a replacement option is to be treated for the purposes of the EMI code as if it had been granted on the date on which the old option was granted.

(6) For the purposes of any of paragraphs 5 to 7 or section 536(1)(e), the total value of the shares in the acquiring company that are subject to the replacement option is to be taken to be equal to—

(a) the total value (as calculated in accordance with paragraph 5(6) to (8)) of the shares that were subject to the old option immediately before the release of rights under that option, or

(b) if the replacement option has been partially exercised, the proportion of that total value which corresponds to the proportion which the number of shares that remain subject to the option bears to the number of shares that were subject to it at the time when it was granted as a new option (see sub-paragraph (2) above).

(7) In the EMI code references to “the old option” or “the new option” are to be construed in accordance with this paragraph.