Part 7

Employment income: income and exemptions relating to securities
Chapter 3

Convertible securities

Tax relief on acquisition

Adjustment of charge
437
1
For the purposes of—
a
any liability to tax under Chapter 1 of Part 3 (earnings), Chapter 10 of Part 3 (taxable benefits: residual liability to charge)
, section 226A (employee shareholder shares: amount treated as earnings)
or Chapter 5 of this Part (acquisition of securities pursuant to securities option)
or Chapter 2 of Part 7A (employment income provided through third parties)
, and
b
the operation of Chapter 3C of this Part (acquisition of securities for less than market value),
the market value of the employment-related securities is to be determined as if they were not convertible securities or an interest in convertible securities
2
Subsection (1) does not apply if the main purpose (or one of the main purposes) of the arrangements under which the right or opportunity to acquire the employment-related securities is made available is the avoidance of tax or national insurance contributions unless the market value of the employment-related securities determined under subsection (1) would be greater than that determined under subsection (3).
3
Where subsection (1) does not apply by virtue of subsection (2) the market value of the employment-related securities is to be determined—
a
where the securities which are (or an interest in which is) the employment-related securities fall within paragraph (a) of section 436 and the entitlement to convert is not both immediate and unconditional, as if it were,
b
where they fall within paragraph (b) of that section, as if the circumstances are such that an entitlement to convert arises immediately, and
c
where they fall within paragraph (c) of that section, as if provision were made for their immediate conversion;
and in each case is to be determined as if they were immediately and fully convertible.
4
In subsection (3)
“
immediately and fully convertible
” means convertible immediately after the acquisition of the employment-related securities so as to obtain the maximum gain that would be possible on a conversion at that time (assuming, where the securities into which the securities may be converted were not in existence at that time and it is appropriate to do so, that they were) without giving any consideration for the conversion or incurring any expenses in connection with it.
Pt. 7: power to modify conferred (7.4.2005) by Finance Act 2005 (c. 7), s. 21(8)-(10)
Words in s. 437(1)(a) inserted (1.9.2013) by Finance Act 2013 (c. 29), Sch. 23 paras. 7, 38; S.I. 2013/1755, art. 2
S. 437(2)-(4) inserted (with effect in accordance with Sch. 2 para. 9(4) of the amending Act) by Finance (No. 2) Act 2005 (c. 22), Sch. 2 para. 9(3)
Pt. 7 Ch. 3 substituted (1.9.2003 with effect in accordance with Sch. 22 para. 4(2) of the amending Act) by Finance Act 2003 (c. 14), Sch. 22 para. 4(1); S.I. 2003/1997, art. 2
S. 437(1): s. 437 renumbered as s. 437(1) (with effect in accordance with Sch. 2 para. 9(4) of the amending Act) by Finance (No. 2) Act 2005 (c. 22), Sch. 2 para. 9(2)
Pt. 7 heading substituted (with effect in accordance with Sch. 22 para. 2(2) of the amending Act) by Finance Act 2003 (c. 14), Sch. 22 para. 2(1)
Words in s. 437(1)(a) inserted (with effect in accordance with Sch. 2 paras. 52-59 of the amending Act) by Finance Act 2011 (c. 11), Sch. 2 para. 17