Finance Act 2013

Section 64

SCHEDULE 24 EMI options and entrepreneurs’ relief etc

Entrepreneurs’ relief to apply to shares acquired under EMI option

1 (1) In Chapter 3 of Part 5 of TCGA 1992 (entrepreneurs’ relief) section 169I (material disposal of business assets) is amended as follows.

(2) In subsection (5) for “or B” substitute “, B, C or D”.

(3) After subsection (7) insert—

“(7A) Condition C is that—

(a) the assets disposed of are relevant EMI shares,

(b) the option grant date is, or is before, the first date of the period of 1 year ending with the date of the disposal, and

(c) throughout that period of 1 year—

(i) the company is either a trading company or the holding company of a trading group, and

(ii) the individual is an officer or employee of the company or (if the company is a member of a trading group) of one or more companies which are members of the trading group.

(7B) Condition D is that—

(a) the assets disposed of are relevant EMI shares acquired by the individual before the cessation date,

(b) the option grant date is, or is before, the first date of the period of 1 year ending with the cessation date,

(c) the conditions in paragraph (c) of subsection (7A) are met throughout that period of 1 year, and

(d) the cessation date is within the period of 3 years ending with the date of the disposal.

(7C) In this section “relevant EMI shares” means—

(a) shares of a company acquired by an individual to which subsection (7D) applies, or

(b) shares of a company to which subsection (7F) applies.

(7D) This subsection applies to shares of a company acquired by an individual if the individual—

(a) acquires them on or after 6 April 2013, and

(b) acquires them as a result of the exercise of a qualifying option within the meaning given by section 527(4) of ITEPA 2003 (enterprise management incentives) where the option is exercised on or before the tenth anniversary of the date mentioned in section 529(2) of that Act.

(7E) Subsection (7D) does not apply to shares acquired as a result of the exercise of a qualifying option if—

(a) a disqualifying event (see section 533 of ITEPA 2003) occurs in relation to the option before its exercise, and

(b) it is exercised later than the period mentioned in section 532(1)(b) of ITEPA 2003.

(7F) This subsection applies to shares of a company if—

(a) the shares are the new holding in a case in which section 127 applies in relation to an individual,

(b) the original shares in that case are relevant EMI shares (whether by virtue of subsection (7D) or this subsection), and

(c) that case is one in which section 127 applies by virtue only of—

(i) section 126, or

(ii) subject to subsection (7G), section 135(3).

(7G) Subsection (7F)(c)(ii) applies only if—

(a) the exchange of shares in question is a qualifying exchange of shares as defined in paragraph 40 of Schedule 5 to ITEPA 2003, and

(b) when the exchange occurs, the independence requirement (see paragraph 9 of Schedule 5 to ITEPA 2003) and the trading activities requirement (see paragraphs 13 and 14 of that Schedule) are met in relation to the new company (see paragraph 40(1)(a) of that Schedule).

(7H) In this section “the original relevant EMI shares”, in relation to shares which are relevant EMI shares by virtue of subsection (7F), means the shares originally acquired by the individual to which subsection (7D) applied.

(7I) If the shares disposed of are relevant EMI shares by virtue of subsection (7F), in relation to times before the reorganisation mentioned in section 127, in subsection (7A)(c) references to the company are to be read as references to (if different)—

(a) the company whose shares are the original relevant EMI shares, or

(b) if there has been more than one reorganisation since the original relevant EMI shares were acquired—

(i) the company whose shares are the original relevant EMI shares, or

(ii) if at the time in question the individual is holding relevant EMI shares which are shares of another company, that other company.

This subsection is subject to subsection (7N).

(7J) If the shares disposed of are relevant EMI shares by virtue of subsection (7F), the question of whether the requirement of subsection (7B)(a) is met is to be determined by reference to the date of the acquisition of the original relevant EMI shares.

(7K) Subject to what follows, in subsections (7A)(b) and (7B)(b) “the option grant date” means the date on which the qualifying option in question was granted.

(7L) Subsections (7M) and (7N) apply if the qualifying option is a replacement option for the purposes of the EMI code (see paragraph 41 of Schedule 5 to ITEPA 2003).

(7M) In subsections (7A)(b) and (7B)(b) “the option grant date” means—

(a) the date on which the old option was granted, or

(b) if the old option was also a replacement option, the date on which the earlier old option was granted,

and so on.

(7N) In relation to any time during the currency of an old option taken into account under subsection (7M), in subsection (7A)(c) references to the company are to be read as references to the company whose shares were the subject of the old option.

(7O) In subsection (7B) “the cessation date” means the date on which the company—

(a) ceases to be a trading company without continuing to be or becoming a member of a trading group, or

(b) ceases to be a member of a trading group without continuing to be or becoming a trading company.

(7P) Subsections (7Q) and (7R) apply in relation to a disposal of relevant EMI shares if—

(a) the shares were acquired as a result of the exercise of a qualifying option where—

(i) a disqualifying event (see section 533 of ITEPA 2003) occurs in relation to the option before its exercise, but

(ii) it is exercised within the period mentioned in section 532(1)(b) of ITEPA 2003, or

(b) if the shares are relevant EMI shares by virtue of subsection (7F), the original relevant EMI shares were acquired as mentioned in paragraph (a).

(7Q) Subsection (7A)(b) has effect as if the reference to the date of the disposal were a reference to the date of the disqualifying event.

(7R) If the disqualifying event is within section 534(1)(c) of ITEPA 2003, subsection (7B)(a) has effect as if the reference to the cessation date were a reference to the first day after the period mentioned in section 532(1)(b) of that Act if that day is later than the cessation date.”

Identification of shares acquired under EMI option

2 Chapter 1 of Part 4 of TCGA 1992 (general provision relating to shares etc) is amended as follows.

3 In section 105 (disposal on or before day of acquisition of shares etc) after subsection (3) insert—

“(4) Subsection (5) applies if an individual—

(a) acquires shares (“the relevant shares”) of the same class, on the same day and in the same capacity, and

(b) some of the relevant shares are relevant EMI shares (as defined by section 169I(7C) to (7G)).

(5) This section has effect as if—

(a) paragraph (a) of subsection (1) required the relevant EMI shares to be treated as acquired by the individual by a single transaction separate from the remainder of the relevant shares (which are also to be treated by virtue of that paragraph as acquired by the individual by a single transaction), and

(b) subsection (1) required the relevant EMI shares to be treated as disposed of after the remainder of the relevant shares.”

4 (1) Section 106A (identification of securities for capital gains tax purposes) is amended as follows.

(2) In subsection (5)—

(a) omit the “and” after paragraph (a),

(b) after paragraph (a) insert—

“(aa) with securities acquired by him within that period which are not relevant EMI shares, rather than with securities acquired by him within that period which are relevant EMI shares; and”, and

(c) at the beginning of paragraph (b) insert “subject to paragraph (aa),”.

(3) After subsection (6) insert—

“(6A) Subject to subsections (4) and (5) above, a company’s shares which are disposed of shall be identified—

(a) with relevant EMI shares, rather than with other shares, and

(b) with relevant EMI shares acquired at an earlier time rather than with relevant EMI shares acquired at a later time.

(6B) No shares identified with relevant EMI shares by virtue of subsection (6A)(a) or (b) above shall be regarded as forming part of an existing section 104 holding or as constituting a section 104 holding.”

(4) In subsection (10), before the definition of “securities”, insert—

• “relevant EMI shares” has the meaning given by section 169I(7C) to (7G),”.

Commencement and transitional provision

5 (1) The amendments made by paragraphs 1 to 4 above have effect in relation to disposals of shares on or after 6 April 2013.

(2) In the case of the amendments made by paragraphs 2 to 4 above, sub-paragraph (1) is subject to paragraph 6(4) below.

6 (1) This paragraph applies if, during the tax year 2012-13, an individual acquires shares of a class in a company (“the relevant shares”) which would be relevant EMI shares were the reference to 6 April 2013 in section 169I(7D)(a) of TCGA 1992 (as inserted by paragraph 1 above) a reference to 6 April 2012 instead.

(2) If the individual makes no disposals of shares of that class in that company during that tax year, the relevant shares are to be treated as if they were relevant EMI shares.

(3) If the individual disposes of shares of that class in that company during that tax year, the individual may elect for the relevant shares to be treated as if they were relevant EMI shares.

(4) If the individual makes an election under sub-paragraph (3)—

(a) the amendments made by paragraphs 2 to 4 above also have effect, in the case of the individual, in relation to disposals of shares of that class in that company during that tax year, but

(b) for this purpose, the amendment made by sub-paragraph (5) has effect instead of the amendment made by paragraph 4(3) above.

(5) In section 106A of TCGA 1992 after subsection (6) insert—

“(6A) Subject to subsections (4) and (5) above, a company’s shares which are disposed of shall be identified—

(a) with shares which are not relevant EMI shares, rather than with relevant EMI shares, and

(b) with relevant EMI shares acquired at a later time rather than with relevant EMI shares acquired at an earlier time.

(6B) No shares identified with relevant EMI shares by virtue of subsection (6A)(b) above shall be regarded as forming part of an existing section 104 holding or as constituting a section 104 holding.”

(6) An election under sub-paragraph (3) may not be made or revoked after 31 January 2014 (and paragraph 3(1)(b) of Schedule 1A to TMA 1970 does not apply in relation to such an election).

(7) For the purposes of this paragraph shares in a company are not to be treated as being of the same class unless they are so treated by the practice of a recognised stock exchange or would be so treated if dealt with on a recognised stock exchange.

(8) “Recognised stock exchange” has the meaning given by section 1005 of ITA 2007.