Part 7Employment income: share-related income
Conditional interests in shares
44Chapter 2 of Part 7 does not apply in relation to interests acquired before 17th March 1998.
45(1)This paragraph relates to the operation of section 425 (cases where Chapter 2 of Part 7 does not apply).
(2)Section 425(1) applies in relation to any acquisition made before 6th April 2003 with the substitution of “if the person was not chargeable under Case I of Schedule E in respect of the office or employment in question” for the words from “if the earnings” onwards.
46(1)This paragraph relates to the operation of section 428 (amount of charge where interest in shares ceases to be only conditional or on disposal) in relation to an acquisition made before 6th April 2003.
(2)For the purposes of section 428(1) each of the following is a “deductible amount”—
(a)any amounts on which the employee has become chargeable to tax under Schedule E in respect of the acquisition of the employee’s interest; and
(b)any amount on which the employee has become chargeable to tax in respect of the shares under section 78 or 79 of FA 1988 (unapproved employee share schemes) by reference to an event that occurred before 6th April 2003.
47(1)This paragraph applies where—
(a)in the tax year 2002-03 a person provided an individual with an interest in shares which was only conditional, and
(b)the circumstances were such that subsequent events might have given rise to a charge under section 140A of ICTA (charge on conditional interest in shares ceasing to be conditional or on disposal) on that individual.
(2)Section 432 (duty to notify provision of conditional interests in shares) applies in relation to the provision subject to the following provisions.
(3)The particulars required by section 432(2) must be provided to the Inland Revenue before 6th May 2003.
(4)However, no particulars of the provision need be provided by a person under section 432 if that person has already given particulars of it under section 140G(1) of ICTA (which made provision corresponding to section 432 for tax years before 2003-04).
48(1)This paragraph applies where—
(a)a person had an interest in shares which was only conditional,
(b)in the tax year 2002-03 either—
(i)the shares ceased to be shares in which that person’s interest was only conditional,
(ii)the shares were disposed of, or
(iii)that person died, and
(c)that event gave rise to a charge under section 140A of ICTA (charge on conditional interest in shares ceasing to be conditional or on disposal).
(2)Section 433 (duty to notify events resulting in charges under section 427) applies in relation to the event subject to the following provisions.
(3)The particulars required by section 433(2) must be provided to the Inland Revenue before 6th May 2003.
(4)However, no particulars of the provision need be provided by a person under section 433 if that person has already given particulars of it under section 140G(2) of ICTA (which made provision corresponding to section 433 for tax years before 2003-04).
Convertible shares
49Chapter 3 of Part 7 does not apply in relation to shares acquired before 17th March 1998.
50(1)This paragraph relates to the operation of section 437 (cases where Chapter 3 of Part 7 does not apply).
(2)Section 437(1) applies in relation to any acquisition made before 6th April 2003 with the substitution of “if the person was not chargeable under Case I of Schedule E in respect of the office or employment in question” for the words from “if the earnings” onwards.
51(1)This paragraph relates to the operation of section 439 (amount of charge on conversion of shares) in relation to an acquisition made before 6th April 2003.
(2)For the purposes of section 439(1) each of the following is a “deductible amount”—
(a)any amounts on which the employee has become chargeable to tax under Schedule E in respect of the acquisition of the convertible shares or the interest in them;
(b)if the convertible shares, or an interest in them, were acquired through a series of conversions each of which was a pre-commencement taxable conversion, the amount of the gain under section 140D(5) of ICTA from each conversion, so far as not falling within paragraph (a); and
(c)any amount on which the employee has become chargeable to tax in respect of the shares under section 78 or 79 of FA 1988 (unapproved employee share schemes) by reference to an event that occurred before 6th April 2003.
(3)In sub-paragraph (2)(b) a “pre-commencement taxable conversion” means a conversion which—
(a)gave rise to a gain on which the employee was chargeable to tax by virtue of section 140D of ICTA, or
(b)would have done so but for the fact that the market value of the shares at the time of the conversion did not exceed the sum of the deductible amounts.
52(1)This paragraph relates to the operation of section 439 (amount of charge on conversion of shares) in relation to an acquisition made on or after 6th April 2003 through a series of conversions, one or more of which occurred before that date and each of which was a pre-commencement taxable conversion or a taxable conversion.
(2)In this paragraph—
“pre-commencement taxable conversion” has the meaning given by paragraph 51(3), and
“taxable conversion” has the meaning given by section 439(6).
(3)For the purposes of section 439(1) each of the following is a “deductible amount”—
(a)the amount of the gain under section 140D(5) of ICTA from each pre-commencement taxable conversion; and
(b)the taxable amount for each taxable conversion, so far as not falling within paragraph (c), (d) or (e) of section 439(2).
53(1)This paragraph applies where—
(a)a person provided an individual with convertible shares, or an interest in such shares, in a company,
(b)those shares were converted in the tax year 2002-03 into shares of a different class, and
(c)the circumstances were such that the conversion gave rise, or might have given rise, to a charge under section 140D of ICTA (convertible shares) on the individual.
(2)Section 445 (duty to notify conversions of shares) applies in relation to the conversion subject to the following provisions.
(3)The particulars required by section 445(2) must be provided to the Inland Revenue before 6th May 2003.
(4)However, no particulars of the provision need be provided by a person under section 445 if that person has already given particulars of it under section 140G(3) of ICTA (which made provision corresponding to section 445 for tax years before 2003-04).
Post-acquisition benefits from shares
54Chapter 4 of Part 7 does not apply in relation to shares or an interest in shares acquired before 26th October 1987, except to the extent provided by paragraph 55 (read with paragraph 56).
55(1)Chapter 4 of Part 7 applies in relation to shares or an interest in shares acquired before 26th October 1987 if the company was not a dependent subsidiary on that date.
(2)But it so applies—
(a)with the omission of sections 453 to 460, and
(b)subject to paragraph 56.
56The removal or variation of a restriction applying to shares or an interest in shares acquired before 26th October 1987 is not a chargeable event for the purposes of section 449 if paragraph 7 of Schedule 8 to FA 1973 (requirement for disposal to nominees at price not exceeding market value on termination of employment) would have applied to it.
57Despite the repeals made by this Act—
(a)sections 138 and 139 of ICTA (share acquisitions by directors and employees), and
(b)section 140 of ICTA (further interpretation) as it applies for the purposes of those sections,
continue to apply in relation to shares or interests in shares acquired before 26th October 1987.
58(1)This paragraph relates to the operation of section 448 (cases where Chapter 4 of Part 7 does not apply).
(2)Section 448(1) applies in relation to any acquisition made before 6th April 2003 with the substitution of “if the person was not chargeable under Case I of Schedule E in respect of the office or employment in question” for the words “if the earnings” onwards.
(3)Section 448(3) and (4) do not apply in relation to any acquisition made before 16th January 1991.
59(1)This paragraph relates to the operation of section 455 (amount of charge on increase in value of shares) in relation to an acquisition made before 6th April 2003.
(2)If before that date an event occurred by virtue of which the employee became chargeable to tax under—
(a)section 140A(4) of ICTA (employee’s interest in shares ceasing to be only conditional), or
(b)section 140D(3) of ICTA (charge on conversion of convertible shares),
on any amount in respect of the shares, that amount is a “deductible amount” for the purposes of section 455(1).
60(1)This paragraph applies where any acquisition of shares or an interest in shares within section 465(1) (general duty to notify acquisitions of shares or interests in shares) was made in the tax year 2002-03.
(2)Section 465 applies in relation to the acquisition subject to the following provisions.
(3)The particulars of the acquisition required by section 465(3) must be provided to the Inland Revenue before 7th July 2003.
(4)However, no particulars of the acquisition need be provided by a company under section 465 if the company has already given particulars of it under—
(a)section 85(1) of FA 1988 (which made provision corresponding to section 465 for tax years before 2003-04),
(b)section 136(6) of ICTA (which made provision corresponding to section 486 for such tax years), or
(c)section 140G(1) of ICTA (which made provision corresponding to section 432 for such tax years).
61(1)This paragraph applies where after 4th February but before 6th April 2003—
(a)a chargeable event (within the meaning given by section 450) occurred in relation to shares in a company, or
(b)a person received a chargeable benefit (within the meaning given by section 458) in respect of shares, or an interest in shares, in a company.
(2)Section 466 (duty to notify chargeable events and chargeable benefits) applies in relation to the event or benefit subject to the following provisions.
(3)The particulars required by section 466(2) must be provided to the Inland Revenue within 60 days after the date on which the event occurred or the benefit was received.
(4)However, no particulars of the event or benefit need be provided by a company under section 466 if the company has already given particulars of it under section 85(2) of FA 1988 (which made provision corresponding to section 466 for tax years before 2003-04).
Share options
62The following provisions have effect in relation to rights obtained before 6th April 1998 with the substitution of “seventh anniversary” for “tenth anniversary”—
(a)section 474(1) (no charge in respect of receipt of shorter-term option), and
(b)section 475(1) (value of longer-term option for purposes of liability to tax in respect of receipt).
63(1)This paragraph relates to the operation of section 473 (share options to which Chapter 5 of Part 7 does not apply).
(2)Section 473(1) applies in relation to a share option granted before 6th April 2003 with the substitution of “if the person was not chargeable under Case I of Schedule E in respect of the office or employment” for the words from “if the earnings” onwards.
64(1)This paragraph relates to the operation of section 478 (amount of charges) in relation to a share option obtained before 6th April 2003.
(2)For the purposes of section 478(1), any amount charged to tax under Schedule E in respect of the receipt of the share option is a deductible amount.
65(1)This paragraph relates to the operation of section 479 (amount of gain realised by exercising option) in relation to a share option obtained before 6th April 2003.
(2)For the purposes of section 479(1), if an amount was chargeable to tax under section 185(6) of ICTA (charge where option under approved share option scheme granted at a discount) in respect of the share option, so much of that amount as is attributable to the shares in question is a deductible cost.
66(1)This paragraph relates to the operation of section 480 (amount of gain realised by assigning or releasing option) in relation to a share option obtained before 6th April 2003.
(2)For the purposes of section 480(1), if an amount was chargeable to tax under section 185(6) of ICTA (charge where option under approved share option scheme granted at a discount) in respect of the share option, so much of that amount as is attributable to the shares in question is a deductible cost.
67(1)This paragraph applies where in the tax year 2002-03 a company—
(a)granted a share option in respect of which tax might have become chargeable under section 135 of ICTA,
(b)allotted or transferred shares on the exercise of such a share option,
(c)received notice of the assignment of such a share option, or
(d)provided a benefit in money or money’s worth—
(i)for the assignment of such a share option,
(ii)for the release in whole or in part of such a share option,
(iii)for or in connection with a failure, or undertaking not, to exercise such a share option, or
(iv)for or in connection with the grant of, or an undertaking to grant, a right to acquire shares or an interest in shares to which such a share option relates.
(2)Section 486 (duty to notify matters relating to share options) applies in relation to the matter subject to the following provisions.
(3)The particulars required by section 486(2) must be provided to the Inland Revenue before 7th July 2003.
(4)However, no particulars of the provision need be provided by a company under section 486 if the company has already given particulars of it under—
(a)section 136(6) of ICTA (which made provision corresponding to section 486 for tax years before 2003-04), or
(b)paragraph 2 of Schedule 14 to FA 2000 (which made provision corresponding to paragraph 44 of Schedule 5 for tax years before 2003-04).
Approved share incentive plans
68(1)This paragraph applies where, immediately before 6th April 2003, an employee share ownership plan was approved under Schedule 8 to FA 2000 (employee share ownership plans).
(2)On and after that date the plan is to be treated as a share incentive plan (or “SIP”) approved by the Inland Revenue under Schedule 2 to this Act.
(3)Sub-paragraph (2) has effect even if the provisions of the plan do not wholly conform with the provisions of Schedule 2 to this Act, but it has effect without prejudice to—
(a)paragraphs 83 and 84 of that Schedule (withdrawal of approval),
(b)paragraphs 89 and 90 of that Schedule (termination of plan), and
(c)any alteration of the plan.
(4)For the purposes of paragraph 84(1)(a) of Schedule 2, as it applies to the plan, nothing is to be regarded as a disqualifying event because of a contravention of any of the requirements of that Schedule if the requirement in question does not correspond to any of the requirements of Schedule 8 to FA 2000.
(5)Nothing in this Act affects the validity of—
(a)any provision of the plan which was included in it at any time before 6th April 2003 in accordance with the provisions of Schedule 8 to FA 2000 as then in force, or
(b)any award of shares under the plan which was made at any such time in accordance with the provisions of that Schedule as then in force.
(6)In this paragraph—
“award of shares” means the appropriation of shares to, or the acquisition of shares on behalf of, a person;
“employee share ownership plan” has the meaning given by paragraph 1(1) of Schedule 8 to FA 2000.
69(1)Any reference in any enactment, instrument or document—
(a)to an employee share ownership plan, or
(b)to an employee share ownership plan approved under Schedule 8 to FA 2000,
is to be read as including, in relation to times after 5th April 2003, a reference to a share incentive plan or to a share incentive plan approved under Schedule 2 to this Act.
(2)Any reference in any enactment, instrument or document—
(a)to a share incentive plan (or SIP), or
(b)to a share incentive plan (or SIP) approved under Schedule 2 to this Act,
is to be read as including, in relation to times before 6th April 2003, a reference to an employee share ownership plan or to an employee share ownership plan approved under Schedule 8 to FA 2000.
(3)Accordingly any reference in the SIP code to shares awarded under an approved SIP is to be read as including, in relation to times before 6th April 2003, a reference to shares awarded under a plan approved under Schedule 8 to FA 2000.
(4)Any reference in a plan within paragraph 68(1) to a person chargeable to tax under Case I of Schedule E is to be read as including, in relation to times after 5th April 2003, a reference to a person whose earnings fall within paragraph 8(2) of Schedule 2 to this Act.
(5)This paragraph—
(a)is without prejudice to Part 1 of this Schedule, and
(b)applies only in so far as the context permits.
(6)In this paragraph—
“awarded” means appropriated to, or acquired on behalf of, a person;
“employee share ownership plan” has the same meaning as in paragraph 68.
70Nothing in paragraph 91(4) of Schedule 2 to this Act (jointly owned companies) prevents a company being a constituent company in a group plan (within the meaning of that Schedule) if it was a participating company in that plan (within the meaning of Schedule 8 to FA 2000) immediately before 24th July 2002.
Approved SAYE option schemes
71(1)This paragraph applies where, immediately before 6th April 2003, a savings-related share option scheme was approved under Schedule 9 to ICTA (approved share option schemes and profit-sharing schemes).
(2)On and after that date the scheme is to be treated as an SAYE option scheme approved by the Inland Revenue under Schedule 3 to this Act.
(3)Sub-paragraph (2) has effect even if the provisions of the scheme do not wholly conform with the provisions of Schedule 3 to this Act, but it has effect without prejudice to—
(a)paragraphs 42 and 43 of that Schedule (withdrawal or loss of approval), and
(b)any approved alteration of the scheme.
(4)For the purposes of paragraph 42 of Schedule 3, as it applies to the scheme, nothing is to be regarded as a disqualifying event if it would not have resulted in any of the former approval requirements ceasing to be met.
The “former approval requirements” means the requirements of Schedule 9 to ICTA by reference to which the scheme was approved.
(5)Nothing in this Act affects the validity of—
(a)any provision of the scheme which was included in it at any time before 6th April 2003 in accordance with the provisions of Schedule 9 to ICTA as then in force, or
(b)any rights obtained under the scheme which were obtained at any such time in accordance with the provisions of that Schedule as then in force.
(6)In this paragraph “savings-related share option scheme” has the meaning given by paragraph 1(1) of Schedule 9 to ICTA.
72(1)Any reference in the SAYE code to a share option granted in accordance with the provisions of an approved SAYE option scheme is to be read as including, in relation to times before 6th April 2003, a reference to a right to acquire shares obtained in accordance with the provisions of a savings-related share option scheme approved under Schedule 9 to ICTA.
(2)Any reference in a scheme within paragraph 71(1) to a person chargeable to tax under Case I of Schedule E is to be read as including, in relation to times after 5th April 2003, a reference to a person whose earnings fall within paragraph 6(2)(c) of Schedule 3 to this Act.
(3)This paragraph—
(a)is without prejudice to Part 1 of this Schedule, and
(b)applies only in so far as the context permits.
(4)In this paragraph “savings-related share option scheme” has the same meaning as in paragraph 71.
Approved CSOP schemes
73(1)This paragraph applies where, immediately before 6th April 2003, a discretionary share option scheme was approved under Schedule 9 to ICTA (approved share option schemes and profit-sharing schemes).
(2)On and after that date the scheme is to be treated as a CSOP scheme approved by the Inland Revenue under Schedule 4 to this Act.
(3)Sub-paragraph (2) has effect even if the provisions of the scheme do not wholly conform with the provisions of Schedule 4 to this Act, but they are without prejudice to—
(a)paragraphs 30 and 31 of that Schedule (withdrawal or loss of approval), and
(b)any approved alteration of the scheme.
(4)For the purposes of paragraph 30 of Schedule 4, as it applies to the scheme, nothing is to be regarded as a disqualifying event if it would not have resulted in any of the former approval requirements ceasing to be met.
The “former approval requirements” means the requirements of Schedule 9 to ICTA by reference to which the scheme was approved.
(5)Nothing in this Act affects the validity of—
(a)any provision of the scheme which was included in it at any time before 6th April 2003 in accordance with the provisions of Schedule 9 to ICTA as then in force, or
(b)any rights obtained under the scheme which were obtained at any such time in accordance with the provisions of that Schedule as then in force.
(6)In this paragraph “discretionary share option scheme” means a share option scheme other than a savings-related share option scheme (as defined by paragraph 1(1) of Schedule 9 to ICTA).
74(1)Any reference in the CSOP code to a share option granted in accordance with the provisions of an approved CSOP scheme is to be read as including, in relation to times before 6th April 2003, a reference to a right to acquire shares obtained in accordance with the provisions of a discretionary share option scheme approved under Schedule 9 to ICTA.
(2)This paragraph—
(a)is without prejudice to Part 1 of this Schedule,
(b)applies only in so far as the context permits, and
(c)has effect subject to paragraph 75.
(3)In this paragraph “discretionary share option scheme” has the same meaning as in paragraph 73.
75(1)This paragraph has effect where, immediately before 6th April 2003, a discretionary share option scheme which was approved before 29th April 1996—
(a)is approved under Schedule 9 to ICTA, and
(b)has effect subject to the modifications made by paragraphs 2 and 3 of Schedule 16 to FA 1996 (scheme to have effect, despite anything included in it to the contrary, as if it contained provisions required by paragraphs 28 and 29 of Schedule 9 to ICTA: limit of £30,000 on value of shares subject to outstanding options and requirements as to price for acquisition of shares).
(2)On and after 6th April 2003 the scheme is to continue to have effect as if it provided—
(a)that an individual may not be granted share options under it which would at the time when they are granted cause the aggregate market value of the shares which the individual may acquire by exercising share options granted under—
(i)the scheme, or
(ii)any other approved CSOP scheme established by the scheme organiser or an associated company of the scheme organiser,
to exceed or further exceed £30,000 (leaving out of account share options that have already been exercised), and
(b)that the price at which shares may be acquired by the exercise of a share option granted under the scheme must not be manifestly less than the market value of shares of the same class at that time (or, if the Board of Inland Revenue and the scheme organiser agree in writing, at an earlier time or times stated in the agreement).
(3)For the purposes of sub-paragraph (2)(a), the market value of shares is to be calculated as at—
(a)the time when the options relating to them were granted, or
(b)if an agreement relating to them has been made under paragraph 22 of Schedule 4 (requirements as to price for acquisition of shares) the earlier time or times stated in the agreement.
(4)Sub-paragraph (2) is subject to any amendment to the scheme made after 28th April 1996 (whether before or after 6th April 2003).
(5)In this paragraph “discretionary share option scheme” has the same meaning as in paragraph 73.
(6)Other expressions used in this paragraph and contained in the index at the end of Schedule 4 (index of expressions defined in the CSOP code) have the meaning indicated by that index.
76(1)This paragraph applies to any right obtained by an individual—
(a)under a discretionary share option scheme approved under Schedule 9 to ICTA, and
(b)during the period beginning with 17th July 1995 and ending with 28th April 1996,
if, by virtue of section 115 of FA 1996 (transitional provisions which gave retrospective effect to certain amendments relating to discretionary share option schemes), the right was, immediately before 6th April 2003, treated for the purposes of sections 185 to 187 of and Schedule 9 to ICTA as having been obtained otherwise than in accordance with the provisions of a discretionary share option scheme approved under that Schedule.
(2)For the purposes of the CSOP code, the right is to be treated as having been granted otherwise than in accordance with the provisions of an approved CSOP scheme.
(3)In this paragraph “discretionary share option scheme” has the same meaning as in paragraph 73.
Enterprise management incentives
77(1)This paragraph applies where, immediately before 6th April 2003, a share option was a qualifying option for the purposes of Schedule 14 to FA 2000 (enterprise management incentives).
(2)On and after that date the share option is to be treated as a qualifying option for the purposes of the EMI code.
(3)Sub-paragraph (2) has effect even if the requirements that had to be met in order for the share option, or any share option replaced by it, to be a qualifying option for the purposes of Schedule 14 to FA 2000 differed to any extent from those set out in Schedule 5.
(4)In this paragraph “share option” means a right to acquire shares.
78(1)In section 535 (disqualifying events relating to employee), subsections (2) to (6) apply to the tax year 2003-04 and later tax years (in accordance with section 723(1)).
(2)In Schedule 14 to FA 2000 (enterprise management incentives), paragraph 52 (disqualifying events: actual relevant working time) continues to apply in relation to April 2003 for the purpose of calculating, in accordance with sub-paragraphs (3) to (5) of that paragraph, whether a disqualifying event is to be taken to have occurred at the end of the tax year 2002-03.
(3)If a disqualifying event is to be taken to have so occurred, it (like anything else which under that Schedule is a disqualifying event immediately before 6th April 2003) is a disqualifying event for the purposes of Schedule 5 to this Act.
79(1)Section 536 (other disqualifying events) has effect in relation to any alteration made to the share capital of a company before 11th May 2001 with the following modification.
(2)In subsection (1), for paragraphs (b) and (c) substitute—
“(b)any alteration to the share capital of the relevant company to which section 537 applies and is made without the prior approval of the Inland Revenue;”.
80(1)Section 537 (alteration of share capital for purposes of section 536) has effect in relation to any alteration made to the share capital of a company before 11th May 2001 with the following modifications.
(2)In subsection (1), omit “and (c)”.
(3)In subsection (2), substitute “This section” for “This subsection”.
(4)Omit subsection (3).
81In a case where the qualifying option was granted before 6th April 2003, section 540(2) (no charge on acquisition of shares as taxable benefit) applies in relation to the time when the option was granted with the substitution of “the employee was chargeable to tax under Case I of Schedule E” for the words from “the earnings” onwards.
82(1)This paragraph relates to the operation of section 541(2) (effects on tax charges where shares cease to be conditional only or are converted) in relation to an FA 2000 option which was exercised before 6th April 2003.
(2)The references to a qualifying option include an FA 2000 option which was so exercised; but in relation to such an option sub-paragraph (3) applies instead of section 541(3).
(3)For the purposes of section 541(2) “the amount of relief on the exercise of the option” means the difference between—
(a)the amount on which tax would have been chargeable under section 135 of ICTA (charge on exercise etc. of option) in respect of the exercise of the option apart from Schedule 14 to FA 2000 (enterprise management incentives), and
(b)the amount (if any) in fact so chargeable in accordance with that Schedule.
(4)In this paragraph an “FA 2000 option” means a qualifying option for the purposes of Schedule 14 to FA 2000.
83In Schedule 5 (enterprise management incentives), paragraph 41(6) (like other provisions of that paragraph) applies to replacement options whenever granted.
Employee benefit trusts
84In relation to times before 6th April 2003, section 549(5) (definition of “employee” for purposes of Chapter 11 of Part 7) is to be read as referring to a person holding an office or employment whose emoluments were chargeable under Schedule E.