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Finance Act 2003

Type Public General Act

Publication 2003-07-10

Last updated 2025-03-20

State In force

Department Statute Law Database

Source legislation.gov.uk

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(471) (1) This Chapter applies to a securities option acquired by a person where the right or opportunity to acquire the securities option is available by reason of an employment of that person or any other person. (2) For the purposes of subsection (1) “employment” includes a former or prospective employment. (3) A right or opportunity to acquire a securities option made available by a person’s employer, or a person connected with a person’s employer, is to be regarded for the purposes of subsection (1) as available by reason of an employment of that person unless— (a) the person by whom the right or opportunity is made available is an individual, and (b) the right or opportunity is made available in the normal course of the domestic, family or personal relationships of that person. (4) A right or opportunity to acquire a securities option available by reason of holding employment-related securities is to be regarded for the purposes of subsection (1) as available by reason of the same employment as that by reason of which the right or opportunity to acquire the employment-related securities was available. (5) In this Chapter— - “the acquisition”, in relation to an employment-related securities option, means the acquisition of the employment-related securities option pursuant to the right or opportunity available by reason of the employment, - “the employment” means the employment by reason of which the right or opportunity to acquire the employment-related securities option is available (“the employee” and “the employer” being construed accordingly), and - “employment-related securities option” means a securities option to which this Chapter applies. (472) (1) For the purposes of this Chapter the following are “associated persons” in relation to an employment-related securities option— (a) the person who acquired the employment-related securities option on the acquisition, (b) (if different) the employee, and (c) any relevant linked person. (2) A person is a relevant linked person if— (a) that person (on the one hand), and (b) either the person who acquired the employment-related securities option on the acquisition or the employee (on the other), are connected or, although not connected, are members of the same household. (3) But a company which would otherwise be a relevant linked person is not if it is— (a) the employer, (b) the person from whom the employment-related securities option was acquired, or (c) the person by whom the right or opportunity to acquire the employment-related securities option was made available. (473) (1) The starting-point is that section 475 contains an exemption from the liability to tax that might otherwise arise under— (a) Chapter 1 of Part 3 (earnings), or (b) Chapter 10 of that Part (taxable benefits: residual liability to charge), when an employment-related securities option is acquired. (2) Liability to tax may arise, when securities are acquired pursuant to the employment-related securities option, under— (a) section 446B (charge on acquisition where market value of securities or interest artificially depressed), (b) Chapter 3C of this Part (acquisition of securities for less than market value), or (c) section 476 (acquisition of securities pursuant to securities option). (3) Liability to tax may also arise by virtue of section 476 when— (a) the employment-related securities option is assigned or released, or (b) a benefit is received in connection with the employment-related securities option. (4) There are special rules relating to share options acquired under— (a) approved SAYE option schemes (see Chapter 7 of this Part), (b) approved CSOP schemes (see Chapter 8 of this Part), or (c) enterprise management incentives (see Chapter 9 of this Part). (474) (1) This Chapter (apart from sections 473 and 483) does not apply in relation to an employment-related securities option if, at the time of the acquisition, the earnings from the employment were not (or would not have been if there had been any) general earnings to which section 15 or 21 applies (earnings for year when employee resident and ordinarily resident in the UK). (2) This Chapter (apart from sections 473 and 483) does not apply in the case of a former employment if it would not apply if the acquisition had taken place in the last tax year in which the employment was held. (3) This Chapter (apart from sections 473 and 483) does not apply in the case of a prospective employment if it would not apply if the acquisition had taken place in the first tax year in which the employment is held. (4) Where the employment-related securities option is a new option (within the meaning of section 483), the references in this section to the acquisition are to the acquisition of the old option (within the meaning of that section). (475) (1) No liability to income tax arises in respect of the acquisition of an employment-related securities option. (2) Subsection (1) is subject to section 526 (approved CSOP schemes: charge where share option granted at a discount). (476) (1) This section applies if a chargeable event occurs in relation to an employment-related securities option. (2) The taxable amount determined under section 478 counts as employment income of the employee for the relevant tax year (but subject to subsection (5)). (3) The “relevant tax year” is the tax year in which the chargeable event occurs. (4) Section 477 explains what are chargeable events for the purposes of this section. (5) If the employee has been divested of the employment-related securities option by operation of law, the person who is the relevant person in relation to the chargeable event (see section 477(7)) is chargeable to tax under Case VI of Schedule D on the amount determined under section 478. (6) This section is subject to— - section 519 (approved SAYE option schemes: no charge in respect of exercise of share option by employee), - section 524 (approved CSOP schemes: no charge in respect of exercise of share option by employee), and - section 530 (enterprise management incentives: no charge on exercise by employee of option to acquire shares at market value). (477) (1) This section applies for the purposes of section 476 (charge on occurrence of chargeable event). (2) Any of the events mentioned in subsection (3) is a “chargeable event” in relation to the employment-related securities option unless it occurs on or after the death of the employee. (3) The events are— (a) the acquisition of securities pursuant to the employment-related securities option by an associated person, (b) the assignment for consideration of the employment-related securities option by an associated person otherwise than to another associated person or the release for consideration of the employment-related securities option by an associated person, or (c) the receipt by an associated person of a benefit in money or money’s worth in connection with the employment-related securities option (other than securities acquired pursuant to the employment-related securities option or consideration for its assignment or release). (4) For the purposes of subsection (3)(a) securities are acquired at the time when a beneficial interest is acquired (and not, if different, the time when the securities are conveyed or transferred). (5) A benefit received on account of any disability (within the meaning of the Disability Discrimination Act 1995) of the employee is to be disregarded for the purposes of subsection (3)(c). (6) A benefit in money or money’s worth received in consideration for or otherwise in connection with— (a) failing or undertaking not to acquire securities pursuant to the employment-related securities option, or (b) granting or undertaking to grant to another person a right to acquire securities which are subject to the employment-related securities option or any interest in them, is to be regarded for the purposes of subsection (3)(c) as received in connection with the employment-related securities option. (7) For the purposes of section 476(5) (charge under Case VI of Schedule D) the relevant person in relation to a chargeable event is— (a) in the case of an event that is a chargeable event by virtue of subsection (3)(a), the person by whom the securities are acquired, and (b) in the case of an event that is a chargeable event by virtue of subsection (3)(b) or (c), the person by whom the consideration or benefit is received. (478) (1) The taxable amount for the purposes of section 476 (charge on occurrence of chargeable event) is— $$AG-DA$where—AG is the amount of any gain realised on the occurrence of the chargeable event, andDA is the total of any deductible amounts.$ (2) Section 479 explains what is the amount of any gain realised on the occurrence of a chargeable event. (3) Section 480 specifies what are deductible amounts. (479) (1) This section applies for the purposes of section 478 (amount of charge on occurrence of chargeable event). (2) The amount of the gain realised on the occurrence of an event that is a chargeable event by virtue of section 477(3)(a) (acquisition of securities) is (subject to subsection (4))— $MV-C$ (3) In subsection (2)— - MV is the market value of the securities that are acquired at the time when they are acquired, and - C is the amount of any consideration given for the securities that are acquired. (4) But the amount of the gain realised on the occurrence of an event that is a chargeable event by virtue of section 477(3)(a) (acquisition of securities) is calculated— (a) if section 531 (enterprise management incentives: limitation of charge on exercise of option to acquire shares below market value) applies, in accordance with that section, and (b) if section 532 (enterprise management incentives: modified tax consequences following disqualifying events) applies, in accordance with that section. (5) The amount of the gain realised on the occurrence of an event that is a chargeable event by virtue of section 477(3)(b) (assignment or release of option) is the amount of the consideration given for the assignment or release. (6) The amount of the gain realised on the occurrence of an event that is a chargeable event by virtue of section 477(3)(c) (receipt of benefit in connection with option) is the amount or market value of the benefit. (7) But if— (a) the consideration mentioned in subsection (5), or (b) the benefit mentioned in subsection (6), consists (in whole or in part) in the provision of securities or an interest in securities the market value of which has been reduced by at least 10% as a result of things done otherwise than for genuine commercial purposes within the period of 7 years ending with the receipt of the consideration or benefit, its market value is to be taken to be what it would be but for the reduction. (8) The following are among the things that are, for the purposes of subsection (7), done otherwise than for genuine commercial purposes— (a) anything done as part of a scheme or arrangement the main purpose, or one of the main purposes, of which is the avoidance of tax or national insurance contributions, and (b) any transaction between companies which are members of the same group on terms which are not such as might be expected to be agreed between persons acting at arm’s length (other than a payment for group relief). (9) In subsection (8)(b)— (a) “group” means a company and its 51% subsidiaries, and (b) “group relief” has the same meaning as in section 402(6) of ICTA. (480) (1) This section applies for the purposes of section 478 (amount of charge on occurrence of chargeable event). (2) The amount of— (a) any consideration given for the acquisition of the employment-related securities option, and (b) the amount of any expenses incurred in connection with the acquisition of securities, assignment, release or receipt which constitutes the chargeable event, is a deductible amount. (3) Where in consequence of— (a) the acquisition of the employment-related securities option, (b) the acquisition of securities pursuant to the employment-related securities option, or (c) a transaction of which the acquisition of the employment-related securities option or the acquisition of securities pursuant to the employment-related securities option forms part, there is a reduction in the market value of any employment-related securities to which an associated person is beneficially entitled, the amount of the reduction is to be treated for the purposes of subsection (2) as consideration (or additional consideration) given for the acquisition of the employment-related securities option. (4) If an amount counts as employment income of the employee under section 526 (approved CSOP schemes: charge where option granted at a discount) in respect of the employment-related securities option, so much of that amount as is attributable to the shares in question is a deductible amount. (5) The following are also deductible amounts— (a) any amount that constituted earnings from the employment under Chapter 1 of Part 3 (earnings) in respect of the acquisition of the employment-related securities option, (b) any amount that was treated as earnings from the employment under Chapter 10 of that Part (taxable benefits: residual liability to charge) in respect of the acquisition of the employment-related securities option, and (c) the amount of any gain by a previous holder on an assignment of the employment-related securities option which would have been a deductible cost by virtue of subsection (2)(c) of section 479 (as originally enacted) on an exercise of the option at a time when that section was in force. (6) If there has been a previous chargeable event in relation to the employment-related securities option (or if section 476 or 477 as originally enacted applied to the option by virtue of an earlier event), so much of any deductible amount as was deducted in calculating the taxable amount on the occasion of that event is to be regarded as not being a deductible amount. (7) Sections 481 and 482 (deductible amounts in respect of secondary Class 1 contributions or special contribution met by the employee) specify further deductible amounts. (481) (1) The amount calculated under subsection (2) is a deductible amount if— (a) an agreement having effect under paragraph 3A of Schedule 1 to the Contributions and Benefits Act has been entered into allowing the secondary contributor to recover from the employee the whole or part of any secondary Class 1 contributions in respect of the gain, or (b) an election having effect under paragraph 3B of Schedule 1 to that Act is in force which has the effect of transferring to the employee the whole or part of the liability to pay secondary Class 1 contributions in respect of the gain. (2) The amount is the sum of— (a) any amount that under the agreement referred to in subsection (1)(a) is recovered in respect of the gain by the secondary contributor before 5th June in the tax year following that in which the gain is realised, and (b) the amount of any liability in respect of the gain that, by virtue of the election referred to in subsection (1)(b), has become the employee’s liability. (3) If notice of withdrawal of approval of the election is given, the amount of any liability in respect of the gain for the purposes of subsection (2)(b) is limited to the amount of the liability met before 5th June in the tax year following that in which the gain is realised. (4) Subsection (1) does not apply in respect of a liability to pay Class 1 contributions which is prevented from arising by virtue of section 2(1)(a) of the Social Security Contributions (Share Options) Act 2001 (liability to pay Class 1 contributions in respect of gains replaced by liability to pay special contribution). (5) In this section— - “approval”, in relation to an election, means approval by the Board of Inland Revenue under paragraph 3B of Schedule 1 to the Contributions and Benefits Act, and - “secondary contributor” has the same meaning as in that Act (see section 7). (482) (1) The amount of the liability referred to in subsection (4) is a deductible amount if conditions A to D are met. (2) Condition A is that a notice in respect the employment-related securities option was given to the Board of Inland Revenue in accordance with section 1 of the Social Security Contributions (Share Options) Act 2001 before 11th August 2001. (3) Condition B is that the person, or one of the persons, who gave that notice is a person who (apart from that Act) was liable, or would have become liable, by virtue of an election under paragraph 3B of Schedule 1 to the Contributions and Benefits Act, to pay secondary Class 1 contributions in respect of an event which is a chargeable event for the purposes of section 476. (4) Condition C is that that person became liable to pay a special contribution under section 2 of the Social Security Contributions (Share Options) Act 2001 in respect of the employment-related securities option. (5) Condition D is that that person met that liability before 11th August 2001 or before the end of such further period as the Board of Inland Revenue directed under section 2(5) of that Act. (483) (1) This section applies if— (a) the employment-related securities option (the “old option”) is assigned or released, and (b) the whole or part of the consideration for the assignment or release consists of or includes another securities option (the “new option”). (2) For the purposes of section 479(5) (amount of gain realised by assigning or releasing option) the new option is not to be treated as consideration given for the assignment or release of the old option. (3) This Chapter applies to the new option as it applies to the old option. (4) For the purposes of section 480(2) (consideration for acquisition of option) the amount of the consideration given for the acquisition of the new option is to be treated as being the sum of— (a) the amount by which the amount of the consideration given for the acquisition of the old option exceeds the amount of any consideration given for the assignment or release of the old option, apart from the new option, and (b) any valuable consideration given for the acquisition of the new option, apart from the old option. (5) Two or more transactions are to be treated for the purposes of subsection (1) as a single transaction by which one option is assigned for a consideration which consists of or includes another option if— (a) the transactions result in— (i) a person ceasing to hold an option, and (ii) that person or a connected person coming to hold another option, and (b) one or more of the transactions is effected under arrangements to which two or more persons holding options, in respect of which there may be liability to tax under this Chapter, are parties. (6) Subsection (5) applies regardless of the order in which the assignments and the acquisition occur. (484) (1) In this Chapter— - “securities”, and - “securities option”, - have the meaning indicated in section 420. (2) In this Chapter “market value” has the meaning indicated in section 421(1). (3) For the purposes of this Chapter sections 421(2) and 421A apply for determining the amount of consideration given for anything. (4) In this Chapter “employment-related securities” has the same meaning as in Chapter 1 of this Part (see section 421B(8)). (5) In this Chapter— - “the acquisition”, - “the employee”, - “the employer”, - “the employment”, and - “employment-related securities option”, - have the meaning indicated in section 471(5). (6) In this Chapter “associated person” has the meaning indicated in section 472. (7) In this Chapter— - “secondary Class 1 contributions” has the same meaning as in the Contributions and Benefits Act (see section 1 of that Act), and - “the Contributions and Benefits Act” means SSCBA 1992 or SSCB(NI)A 1992.

(2) Sub-paragraph (1) has effect—

(a) on and after 16th April 2003 in relation to employment-related securities options which are not share options, and

(b) on and after the day appointed under paragraph 3(2) in relation to employment-related securities options which are share options;

and for this purpose “share options” means rights to acquire shares in a company or securities as defined in section 254(1) of the Taxes Act 1988 issued by a company.

PAYE

11

(1) Section 509 (modification of section 696 where charge on shares ceasing to be subject to plan) is amended as follows.

(2) In subsection (4), for “subsection (5)” substitute “ subsections (5) and (6) ”.

(3) After subsection (5) insert—

(6) In determining for the purposes of this section (and of section 696 in its application in accordance with this section) whether the shares are readily convertible assets, section 702 has effect with the omission of subsections (5A) to (5D).

12

(1) For sections 698 and 699 (PAYE: conditional interests in shares and convertible shares) substitute—

(698) (1) This section applies where by reason of the operation of— (a) section 426 (chargeable events in relation to restricted securities and restricted interests in securities), (b) section 438 (chargeable events in relation to convertible securities and interests in convertible securities), (c) section 446B (charge on acquisition where market value of securities or interest artificially depressed), (d) section 446L (charge where market value of securities artificially enhanced), (e) section 446U (securities or interest acquired for less than market value: charge on discharge of notional loan), (f) section 446Y (charge where securities or interest disposed of for more than market value), or (g) section 447 (chargeable benefit from securities or interest), in relation to employment-related securities, an amount counts as employment income of an employee. (2) Sections 684 to 691 and 696 have effect as if— (a) the employee were provided with PAYE income in the form of the employment-related securities by the employer on the relevant date, and (b) the reference in subsection (2) of section 696 to the amount of income likely to be PAYE income in respect of the provision of the asset were to the amount likely to count as employment income. (3) In a case in which the employment-related securities are not readily convertible assets, if— (a) the amount counts as income by virtue of section 427(3)(c), 439(3)(b), (c) or (d), 446Y or 447, and (b) the whole or any part of the consideration or benefit concerned takes the form of a payment or consists in the provision of an asset, subsection (4) applies. (4) Sections 684 to 691 and 696 have effect — (a) to the extent that the consideration or benefit takes the form of a payment, as if it were a payment of PAYE income of the employee by the employer, and (b) to the extent that the consideration or benefit consists in the provision of an asset, as if the provision of the asset were the provision of PAYE income in the form of the asset by the employer on the relevant date. (5) Section 696 as applied by subsection (4)(b) has effect as if the reference in subsection (2) of that section to the amount of income likely to be PAYE income were to the same proportion of the amount likely to count as employment income as so much of the consideration or benefit as consists in the provision of the asset bears to the whole of the consideration or benefit. (6) In this section “the relevant date” means— (a) in relation to an amount counting as employment income under section 426 or 438, the date on which the chargeable event in question occurs, (b) in relation to an amount counting as employment income under section 446B, the date of the acquisition of the securities or interest in securities in question, (c) in relation to an amount counting as employment income under section 446L, the valuation date in question, (d) in relation to an amount counting as employment income under section 446U, the date on which the notional loan in question is treated as discharged, (e) in relation to an amount counting as employment income under section 446Y, the date of the disposal of the securities or interest in securities in question, and (f) in relation to an amount counting as employment income under section 447, the date on which the benefit in question is received. (7) In this section “employment-related securities” has the same meaning as in Chapters 1 to 4 of Part 7.

(2) Sub-paragraph (1) has effect on and after the day appointed under paragraph 3(2) but does not affect the operation of section 698 as originally enacted in relation to any securities, or interests in securities, acquired before 16th April 2003.

13

(1) For section 700 (PAYE: gains from share options) substitute—

(700) (1) This section applies where by reason of the operation of section 476 (acquisition of securities pursuant to securities option etc) in relation to an employment-related securities option an amount counts as employment income of an employee. (2) In a case where the amount counts as employment income by virtue of section 477(3)(a) (acquisition of securities), sections 684 to 691 and 696 have effect as if— (a) the employee were provided with PAYE income in the form of the securities by the employer on the relevant date, and (b) the reference in subsection (2) of section 696 to the amount of income likely to be PAYE income in respect of the provision of the asset were to the amount likely to count as employment income. (3) In a case where the amount counts as income by virtue of section 477(3)(b) or (c) (assignment or release for consideration or receipt of benefit), sections 684 to 691 and 696 have effect — (a) to the extent that the consideration or benefit takes the form of a payment, as if it were a payment of PAYE income of the employee by the employer, and (b) to the extent that the consideration or benefit consists in the provision of an asset, as if the provision of the asset were the provision of PAYE income in the form of the asset by the employer on the relevant date. (4) Section 696 as applied by subsection (3)(b) has effect as if the reference in subsection (2) of that section to the amount of income likely to be PAYE income were to the same proportion of the amount likely to count as employment income as so much of the consideration or benefit as consists in the provision of the asset bears to the whole of the consideration or benefit. (5) In this section “the relevant date” means the date on which the chargeable event in question occurs. (6) In this section— - “employment-related securities option”, and - “securities”, - have the same meaning as in Chapter 5 of Part 7.

(2) Sub-paragraph (1) has effect on and after the day appointed under paragraph 3(2).

14

(1) In section 701(2)(b) (“asset” not to include vouchers or credit-tokens), omit “subject to section 700(6),”.

(2) Sub-paragraph (1) has effect on and after the day appointed under paragraph 3(2).

15

(1) Section 702 (meaning of “readily convertible asset”) is amended as follows.

(2) After subsection (5) insert—

(5A) An asset consisting in securities which is not a readily convertible asset apart from this subsection is to be treated as a readily convertible asset unless the securities are shares that are corporation tax deductible. (5B) For the purposes of subsection (5A) shares are corporation tax deductible if they are acquired by a person— (a) by reason of that, or another person's, employment with a company, or (b) pursuant to an option granted by reason of that, or another person's, employment with a company, and the company is entitled to corporation tax relief in respect of the shares under Schedule 23 to the Finance Act 2003 (corporation tax relief for employee share acquisition). (5C) If a person acquires additional shares by virtue of holding shares that are corporation tax deductible, the additional shares are to be treated for the purposes of subsection (5A) as if they were corporation tax deductible. (5D) If— (a) on a person ceasing to be beneficially entitled to shares that are corporation tax deductible, that person acquires other shares, and (b) the circumstances are such that the shares to which the person ceases to be beneficially entitled constitute “original shares” and the other shares constitute a “new holding” for the purposes of sections 127 to 130 of TCGA 1992, the shares that constitute the new holding are to be treated for the purposes of subsection (5A) as if they were corporation tax deductible.

(3) In subsection (6), after the definition of “money debt” insert—

“securities” has the same meaning as in Chapters 1 to 5 of Part 7 (employment income from securities) (see section 420), “shares” includes— (a) an interest in shares, and (b) stock or an interest in stock,

(4) For the purposes of section 702, shares are to be treated as corporation tax deductible during an accounting period which began before 1st January 2003 if they would have been corporation tax deductible had the accounting period begun on or after that date.

Consequential amendments

16

(1) In section 3(1) (structure of employment income Parts), in the entry relating to Part 7, for “share-related income and exemptions” substitute “ income and exemptions relating to securities and securities options acquired in connection with an employment ”.

(2) Sub-paragraph (1) has effect on and after 16th April 2003.

17

(1) In section 7(6)(b) (employment income), for “(share-related income and exemptions)” substitute “ (income and exemptions relating to securities and securities options) ”.

(2) Sub-paragraph (1) has effect on and after 16th April 2003.

18

(1) In section 19(2) (year in which earnings treated as received), omit the entries relating to Chapters 8 and 9 of Part 3.

(2) Sub-paragraph (1) has effect—

(a) so far as relating to Chapter 8 of Part 3, in accordance with the provision made for the repeal of that Chapter, and

(b) so far as relating to Chapter 9 of Part 3, in accordance with the provision made for the repeal of that Chapter.

19

(1) In section 32(2) (receipt of non-money earnings), omit the entries relating to Chapters 8 and 9 of Part 3.

(2) Sub-paragraph (1) has effect—

(a) so far as relating to Chapter 8 of Part 3, in accordance with the provision made for the repeal of that Chapter, and

(b) so far as relating to Chapter 9 of Part 3, in accordance with the provision made for the repeal of that Chapter.

20

(1) In section 63(1) (the benefits code), omit the entries relating to Chapters 8 and 9 of Part 3.

(2) Sub-paragraph (1) has effect—

(a) so far as relating to Chapter 8 of Part 3, in accordance with the provision made for the repeal of that Chapter, and

(b) so far as relating to Chapter 9 of Part 3, in accordance with the provision made for the repeal of that Chapter.

21

(1) In section 64 (relationship between earnings and benefits code), omit subsections (5) and (6).

(2) Sub-paragraph (1) has effect in accordance with the provision made for the repeal of Chapter 8 of Part 3.

22

(1) Omit Chapter 8 of Part 3.

(2) Sub-paragraph (1) has effect in relation to shares, and interests in shares, acquired on or after 16th April 2003.

23

(1) Omit Chapter 9 of Part 3.

(2) Sub-paragraph (1) has effect in relation to shares, and interests in shares, disposed of on or after 16th April 2003.

24

(1) Section 216 (provisions not applicable to lower-paid employments) is amended as follows.

(2) In subsection (4), omit the entries relating to Chapters 8 and 9 of Part 3.

(3) In subsection (6), omit the entries relating to section 195(3) and section 199(4).

(4) Sub-paragraphs (1) to (3) have effect—

(a) so far as relating to Chapter 8 of Part 3, in accordance with the provision made for the repeal of that Chapter, and

(b) so far as relating to Chapter 9 of Part 3, in accordance with the provision made for the repeal of that Chapter.

25

(1) Section 227(4) (employment income: exemptions) is amended as follows.

(2) For paragraphs (a) and (b) substitute—

(a) section 425 (restricted securities: no charge in respect of acquisition in certain circumstances), (b) section 475 (no charge in respect of acquisition of securities option),

(3) Omit paragraphs (d), (f) and (h).

(4) This paragraph has effect—

(a) so far as relating to section 425, in accordance with the provision made for the substitution of Chapter 2 of Part 7, and

(b) otherwise, in accordance with the provision made for the substitution of Chapter 5 of Part 7.

26

(1) Omit section 491 (no charge under Chapter 8 of Part 3 in respect of acquisition of approved share incentive plan shares).

(2) Sub-paragraph (1) has effect in accordance with the provision made for the repeal of Chapter 8 of Part 3.

27

(1) Omit section 494 (no charge on removal of restrictions applying to approved share incentive plan shares).

(2) Sub-paragraph (1) has effect—

(a) so far as relating to section 427, in accordance with the provision made for the substitution of Chapter 2 of Part 7, and

(b) so far as relating to section 449, in accordance with the provision made for the substitution of Chapter 4 of Part 7.

28

(1) Omit section 495 (approved share incentive plan shares: value of shares in dependent subsidiary).

(2) Sub-paragraph (1) has effect on 16th April 2003.

29

(1) Omit section 518 (no charge in respect of acquisition of approved SAYE share scheme option).

(2) Sub-paragraph (1) has effect on the day appointed under paragraph 3(2).

30

(1) In section 519 (no charge in respect of exercise of approved SAYE share scheme option), omit subsection (4).

(2) Sub-paragraph (1) has effect on the day appointed under paragraph 3(2).

31

(1) Omit section 520 (approved SAYE option schemes: no charge in respect of post-acquisition benefits).

(2) Sub-paragraph (1) has effect in accordance with the provision made for the substitution of Chapter 4 of Part 7.

32

(1) Omit section 523 (no charge in respect of acquisition of approved CSOP scheme option).

(2) Sub-paragraph (1) has effect on the day appointed under paragraph 3(2).

33

(1) In section 524 (no charge in respect of exercise of approved CSOP scheme option), omit subsection (4).

(2) Sub-paragraph (1) has effect on the day appointed under paragraph 3(2).

34

(1) Omit section 525 (approved CSOP schemes: no charge in respect of post-acquisition benefits).

(2) Sub-paragraph (1) has effect in accordance with the provision made for the substitution of Chapter 4 of Part 7.

35

(1) In section 526(4) (charge where approved CSOP scheme option granted at a discount: deductions of charge from amount chargeable under other provisions), for the words from the beginning to “deductions” substitute “ Section 480(4) (gain realised on acquisition of securities pursuant to option etc) provides for a deduction ”.

(2) Sub-paragraph (1) has effect—

(a) so far as relating to section 194, in accordance with the provision made for the repeal of Chapter 8 of Part 3, and

(b) otherwise, on and after the day appointed under paragraph 3(2).

36

(1) Omit section 528 (enterprise management incentives: no charge in respect of acquisition of qualifying option).

(2) Sub-paragraph (1) has effect on the day appointed under paragraph 3(2).

37

(1) In section 531(4) (enterprise management incentives: limitation of charge on exercise of qualifying option to acquire shares below market value), for the words after “which” substitute “ under section 478 (amount of charge under section 476) is to be regarded as the taxable amount for the purposes of section 476 in respect of the acquisition of the shares pursuant to the option. ”.

(2) Sub-paragraph (1) has effect on and after the day appointed under paragraph 3(2).

38

(1) In section 532(5) (enterprise management incentives: modified tax consequences following disqualifying events), for the words after “which” substitute “ under section 478 (amount of charge under section 476) is to be regarded as the taxable amount for the purposes of section 476 in respect of the acquisition of the shares pursuant to the option. ”.

(2) Sub-paragraph (1) has effect on and after the day appointed under paragraph 3(2).

39

(1) In section 538 (share conversions excluded for purposes of section 536), for subsection (4) substitute—

(4) In this section— “associated company” has the same meaning as, by virtue of section 416 of ICTA, it has for the purposes of Part 11 of ICTA, “director” has the same meaning as in the benefits code (see section 67) but also includes a person who is to be or has been a director, “employee” includes a person who is to be or has been an employee, and “employee-controlled” has the same meaning as in Chapters 1 to 4 of this Part (see section 421H(1)).

(2) Sub-paragraph (1) has effect on and after the day appointed under paragraph 3(2).

40

(1) In section 540(1) (enterprise management incentives: notional loan provisions not to apply in relation to acquisition of shares by exercise of qualifying option), for “Chapter 8 of Part 3” substitute “ Chapter 3C of this Part ”.

(2) Sub-paragraph (1) has effect in accordance with the provision made for the repeal of Chapter 8 of Part 3.

41

(1) In section 541 (enterprise management incentives: effect on other income tax charges), for subsections (1) and (2) substitute—

(1) Nothing in the EMI code affects— (a) the operation of Chapters 2 to 4 of this Part in relation to shares acquired under a qualifying option, or (b) the operation of Chapter 5 of this Part otherwise than in relation to the acquisition of shares under a qualifying option. (2) But in calculating the taxable amount for the purposes of section 426 (post-acquisition charge on restricted securities) in respect of shares acquired under a qualifying option, the amount of relief on the exercise of the option is to be regarded as a deductible amount for the purposes of section 428 (amount of charge).

(2) So far as relating to—

(a) Chapter 9 of Part 3 (which is repealed and replaced by provisions inserted in Part 7),

(b) any of the new Chapters substituted or inserted in Part 7 by this Schedule, and

sub-paragraph (1) has effect in accordance with the provision made for the taking effect of the repeal, substitution or insertion.

42

(1) Part 2 of Schedule 1 (index of defined expressions) is amended as follows.

(2) Omit the entries relating to—

“acquisition (in Chapter 8 of Part 3)”,

“the acquisition (in Chapter 8 of Part 3)”,

“acquisition (in Chapter 9 of Part 3)”,

“the acquisition (in Chapter 4 of Part 7)”,

“as a director or employee, in relation to the acquisition of an interest in shares (in Chapter 2 of Part 7)”,

“as a director or employee, in relation to the acquisition of shares or an interest in shares (in Chapter 3 of Part 7)”,

“as a director or employee, in relation to the acquisition of shares or an interest in shares (in Chapter 4 of Part 7)”,

“assign, in relation to a share option (in Chapter 5 of Part 7)”,

“associated company (in Chapter 4 of Part 7)”,

“company (in Chapter 5 of Part 7)”,

“the Contributions and Benefits Act (in Chapter 5 of Part 7)”,

“convertible, in relation to shares (in Chapter 3 of Part 7)”,

“dependent subsidiary (in Chapter 4 of Part 7)”,

“director (in Chapter 2 of Part 7)”,

“director (in Chapter 3 of Part 7)”,

“director (in Chapter 4 of Part 7)”,

“director (in Chapter 5 of Part 7)”,

“employee (in Chapter 8 of Part 3)”,

“employee (in Chapter 9 of Part 3)”,

“employee (in Chapter 2 of Part 7)”,

“the employee (in Chapter 2 of Part 7)”,

“employee (in Chapter 3 of Part 7)”,

“the employee (in Chapter 3 of Part 7)”,

“employee (in Chapter 4 of Part 7)”,

“the employee (in Chapter 4 of Part 7)”,

“employee (in Chapter 5 of Part 7)”,

“the employee (in Chapter 5 of Part 7)”,

“employee-controlled (in relation to a company) (in Chapter 4 of Part 7)”,

“the employee’s interest (in Chapter 2 of Part 7)”,

“the employer company (in Chapter 2 of Part 7)”,

“the employer company (in Chapter 3 of Part 7)”,

“the employer company (in Chapter 4 of Part 7)”,

“employment-related shares (in Chapter 9 of Part 3)”,

“the employment-related shares (in Chapter 8 of Part 3)”,

“held by outside shareholders (in Chapter 4 of Part 7)”,

“interest in shares (in Chapter 8 of Part 3)”,

“interest in shares (in Chapter 9 of Part 3)”,

“interest in shares (in Chapter 4 of Part 7)”,

“market value (in Chapter 8 of Part 3)”,

“market value (in Chapter 9 of Part 3)”,

“market value (in Chapter 2 of Part 7)”,

“only conditional (interest in shares) (in Chapter 2 of Part 7)”,

“payment for the employment-related shares (in Chapter 8 of Part 3)”,

“release, in relation to a share option (in Chapter 5 of Part 7)”,

“secondary Class 1 contributions (in Chapter 5 of Part 7)”,

“share option (in Chapter 5 of Part 7)”,

“the share option (in Chapter 5 of Part 7)”,

“shares (in Chapter 8 of Part 3)”,

“shares (in Chapter 9 of Part 3)”,

“shares (in Chapter 2 of Part 7)”,

“the shares (in Chapter 2 of Part 7)”,

“shares (in Chapter 3 of Part 7)”,

“the shares (in Chapter 3 of Part 7)”,

“shares (in Chapter 4 of Part 7)”,

“the shares (in Chapter 4 of Part 7)”,

“shares (in Chapter 5 of Part 7)”,

“terms (in Chapter 2 of Part 7)”,

“terms (in Chapter 3 of Part 7)”, and

“value (in relation to shares) (in Chapter 4 of Part 7)”.

(3) At the appropriate places insert—

the acquisition (in Chapters 1 to 4 of Part 7)	section 421B(8) (see also section 446Q(4))

the acquisition (in Chapter 5 of Part 7)	section 471(5)

associated company (in section 421H(1) and Chapters 2 to 4 of Part 7)	section 421H(2)

associated person (in Chapters 1 to 4 of Part 7)	section 421C

associated person (in Chapter 5 of Part 7)	section 472

chargeable event (in Chapter 3B of Part 7)	section 446P(5)

the Contributions and Benefits Act (in Chapter 5 of Part 7)	section 484(7)

consideration (in Chapters 2 to 5 of Part 7)	sections 421(2) and 421A

consideration given for the acquisition of employment-related securities (in Chapters 2 to 3A of Part 7)	section 421I

convertible securities (in Chapters 2 to 3A of Part 7)	section 436

the employee (in Chapters 1 to 4 of Part 7)	section 421B(8)

the employee (in Chapter 5 of Part 7)	section 471(5)

employee-controlled (in Chapters 2 to 4 of Part 7)	section 421H(1)

the employer (in Chapters 1 to 4 of Part 7)	section 421B(8)

the employer (in Chapter 5 of Part 7)	section 471(5)

the employment (in Chapters 1 to 4 of Part 7)	section 421B(8)

the employment (in Chapter 5 of Part 7)	section 471(5)

employment-related securities (in Chapters 1 to 5 of Part 7)	section 421B(8) (see also section 484(4))

employment-related securities option (in Chapter 5 of Part 7)	section 471(5)

interest, in relation to securities (or shares) (in Chapters 1 to 5 of Part 7)	section 420(8)

market value (in Chapters 1 to 5 of Part 7)	section 421(1)

non-commercial increase (in Chapter 3B of Part 7)	section 446K(4)

non-commercial reduction (in Chapter 3B of Part 7)	section 446K(4)

the notional loan (in Chapter 3C of Part 7)	section 446S(1)

recognised stock exchange	section 841 of ICTA

relevant period (in Chapter 3B of Part 7)	section 446O

restricted securities and restricted interest in securities (in Chapters 2, 3A and 3B of Part 7)	sections 423 and 424

restriction (in Chapters 2, 3A and 3B of Part 7)	section 432(8)

secondary Class 1 contributions (in Chapter 5 of Part 7)	section 484(7)

securities (in Chapters 1 to 5 of Part 7)	section 420

securities option (in Chapters 1 to 5 of Part 7)	section 420(8)

shares (in Chapters 1 to 5 of Part 7)	section 420(8)

valuation date (in Chapter 3B of Part 7)	section 446O

, and

variation, in relation to a restriction (in Chapter 2 of Part 7)	section 427(4)

(4) So far as relating to—

(a) Chapters 8 and 9 of Part 3 (which are repealed and replaced by provisions inserted in Part 7),

(b) each of the new Chapters substituted or inserted in Part 7, and

sub-paragraphs (1) to (3) have effect in accordance with the provision made for the taking effect of the repeal, substitution or insertion.

43

(1) In paragraph 35 of Schedule 2 (approved share incentive plans: maximum annual award), for sub-paragraphs (3) and (4) substitute—

(3) For the purposes of this paragraph the market value of restricted shares is to be determined as if they were not. (4) Shares are “restricted shares” if there is any contract, agreement, arrangement or condition which makes provision to which any of subsections (2) to (4) of section 423 (restricted securities) would apply if the references in those subsections to the employment-related securities were to the shares.

(2) Sub-paragraph (1) has effect in accordance with the provision made for the substitution of Chapter 2 of Part 7.

44

(1) In paragraph 42(3) of Schedule 3 (approved SAYE option schemes: withdrawal of approval), for paragraph (b) substitute—

(b) section 421G(b) (exemption from Chapters 2 to 4 of Part 7),

(2) Sub-paragraph (1) has effect in accordance with the provision made for the substitution of Chapter 4 of Part 7.

45

(1) Schedule 5 (enterprise management incentives) is amended as follows.

(2) In paragraph 5, for sub-paragraphs (7) and (8) substitute—

(7) For the purposes of this paragraph the market value of restricted shares is to be determined as if they were not. (8) Shares are “restricted shares” if there is any contract, agreement, arrangement or condition which makes provision to which any of subsections (2) to (4) of section 423 (restricted securities) would apply if the references in those subsections to the employment-related securities were to the shares.

(3) In paragraph 37, for sub-paragraphs (4) to (6) substitute—

(4) Where the shares that may be acquired by the employee are restricted shares, the agreement must contain details of the restrictions. (5) For the purposes of sub-paragraph (4)— (a) shares are “restricted shares” if there is any contract, agreement, arrangement or condition which makes provision to which any of subsections (2) to (4) of section 423 (restricted securities) would apply if the references in those subsections to the employment-related securities were to the shares, and (b) “restrictions” means that provision.

(4) Sub-paragraphs (1) to (3) have effect in accordance with the provision made for the substitution of Chapter 2 of Part 7.

46

(1) Schedule 7 (transitionals and savings) is amended as follows.

(2) Omit paragraphs 30 and 31.

(3) In the heading of Part 6, for “share-related” substitute “ related to securities ”.

(4) In the heading of Part 7, for “share-related income” substitute “ income related to securities ”.

(5) Before paragraph 44 insert—

(43A) (1) This paragraph relates to the operation of section 421E (exclusions from Chapters 2 to 4 of Part 7: residence) in relation to an acquisition made before 6th April 2003. (2) Section 421E(1) has effect with the substitution of “ the employee was not chargeable under Case I of Schedule E in respect of the employment ” for the words from “the earnings”. (3) Section 421E(2) has effect with the substitution of “ the emoluments of the employment did not fall to be charged to income tax under Schedule E ” for the words from “the earnings”.

(6) In paragraph 44, after “Part 7” insert “ , as originally enacted, ”.

(7) In paragraph 45(1), at end insert “ , as originally enacted. ”.

(8) In paragraph 46(1), after “disposal)” insert “ , as originally enacted, ”.

(9) Omit paragraphs 47 and 48.

(10) In paragraph 49, for “shares” substitute “ securities ”.

(11) Omit paragraphs 50 to 52.

(12) Omit paragraph 53.

(13) In paragraph 54, after “Part 7” insert “ , both as originally enacted and as substituted by the Finance Act 2003, ”.

(14) In paragraph 55—

(a) after “Part 7” insert “ , as originally enacted, ”, and

(b) omit sub-paragraph (2)(a).

(15) In paragraph 56, after “section 449” insert “ , as originally enacted, ”.

(16) In paragraph 58(1), at end insert “ , as originally enacted. ”

(17) Omit paragraph 59.

(18) Omit paragraphs 60 and 61.

(19) After paragraph 61 insert—

(61A) Chapter 3D of Part 7 does not apply in relation to securities, or an interest in securities, acquired on or before 6th April 1976.

(20) Omit paragraph 62.

(21) For paragraph 63 substitute—

(63) (1) This paragraph relates to the operation of section 474 (exclusions from Chapter 5 of Part 7: residence) in relation to an acquisition made before 6th April 2003. (2) Section 474(1) has effect with the substitution of “ the employee was not chargeable under Case I of Schedule E in respect of the employment ” for the words from “the earnings”.

(22) In paragraph 64—

(a) for “share” (in both places) substitute “ securities ”,

(b) for “obtained” substitute “ acquired ”, and

(23) In paragraph 65—

(a) in sub-paragraph (1), for “479 (amount of gain realised by exercising option) in relation to a share option obtained” substitute “ 478 in relation to an event that is a chargeable event by virtue of section 477(3)(a) or (b) (acquisition of securities pursuant to an option and assignment and release of option) in the case of a share option acquired ”, and

(b) in sub-paragraph (2), for “479(1)” substitute “ 478(1) ” and for “cost” substitute “ amount ”.

(24) Omit paragraph 66.

(25) Omit paragraph 67.

(26) In this paragraph—

(a) sub-paragraphs (2) and (19) have effect in relation to securities, and interests in securities, disposed of on or after 16th April 2003,

(b) sub-paragraphs (5) and (13) to (17) have effect on and after 16th April 2003,

(c) sub-paragraphs (6) to (8), (10), (11), (20), (23) and (24) have effect on the day appointed under paragraph 3(2), and

(d) sub-paragraphs (21) and (22) have effect in accordance with the provision made for the substitution of Chapter 5 of Part 7.

Consequential amendments of other enactments

47

(1) In section 98 of the Taxes Management Act 1970 (c. 9) (penalties for failure to furnish information etc)—

(a) in the first column of the Table, at the appropriate place insert “ Section 421J(4) of ITEPA 2003. ”, and

(b) in the second column of the Table, for the entries relating to sections 432, 433, 445, 465, 466 and 486 of the Income Tax (Earnings and Pensions) Act 2003 (c. 1) substitute “ Section 421J(3) of ITEPA 2003. ”.

(2) Sub-paragraph (1) has effect in accordance with the provision made for the substitution of Chapter 1 of Part 7 of the Income Tax (Earnings and Pensions) Act 2003.

48

(1) In section 4(4)(a) of—

(a) the Social Security Contributions and Benefits Act 1992 (c. 4) (payments treated as earnings), and

(b) the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (c. 7) (corresponding provision for Northern Ireland),

for the words after “479” substitute “ of ITEPA 2003 in respect of which an amount counts as employment income of the earner under section 476 of that Act (charge on acquisition of securities pursuant to option etc), reduced by any amounts deducted under section 480(1) to (6) of that Act in arriving at the amount counting as such employment income; ”.

(2) Sub-paragraph (1) has effect in accordance with the provision made for the substitution of Chapter 5 of Part 7 of the Income Tax (Earnings and Pensions) Act 2003.

49

The Taxation of Chargeable Gains Act 1992 (c. 12) is amended as follows.

50

(1) After section 119 insert—

(119A) (1) This section applies to a disposal of an asset consisting of employment-related securities if the disposal— (a) is an event giving rise to a relevant income tax charge, or (b) is the first disposal after an event, other than a disposal, giving rise to a relevant income tax charge. (2) Section 38(1)(a) applies as if the relevant amount had formed part of the consideration given by the person making the disposal for his acquisition of the employment-related securities. (3) For the purposes of this section an event gives rise to a relevant income tax charge if it results in an amount counting as employment income— (a) under section 426 of ITEPA 2003 (restricted securities), (b) under section 438 of ITEPA 2003 by virtue of section 439(3)(a) of that Act (conversion of convertible securities), (c) under section 446U of ITEPA 2003 (securities acquired for less than market value: discharge of notional loan), or (d) under section 476 of ITEPA 2003 by virtue of section 477(3)(a) of that Act (acquisition of securities pursuant to employment-related securities option), in respect of the employment-related securities. (4) For the purposes of this section “the relevant amount” is the aggregate of the amounts counting as employment income as mentioned in subsection (3) above by reason of events occurring— (a) not later than the disposal, and (b) where this section has applied to an earlier disposal of the employment-related securities, after the last disposal to which this section applied. (5) But where the relevant amount consists of or includes an amount counting as employment income under section 476 of ITEPA 2003, it is to be increased by the aggregate of any amounts deducted under section 480(5)(a) or (b), 481 or 482 of that Act in arriving at the amount of that employment income. (6) Where securities or interests in securities cease to be employment-related securities— (a) by reason of subsection (6) of section 421B of ITEPA 2003 in circumstances in which, immediately before the employee’s death, the employment-related securities are held otherwise than by the employee, or (b) by reason of subsection (7) of that section, they are to be regarded for the purposes of this section as remaining employment-related securities until the next occasion on which they are disposed of. (7) In this section— - “employment-related securities”, and - “employee”, in relation to employment-related securities, - have the same meaning as in Chapters 1 to 4 of Part 7 of ITEPA 2003. (8) References in this section to ITEPA 2003 are to that Act as amended by Schedule 22 to the Finance Act 2003.

(2) Sub-paragraph (1) has effect in relation to disposals on or after 16th April 2003.

51

In section 120 (increase in expenditure by reference to tax charged in relation to shares etc), after subsection (8) insert—

(9) References in this section to ITEPA 2003 are to that Act as originally enacted.

52

(1) After section 149A insert—

(149AA) (1) Where an individual has acquired an asset consisting of employment-related securities which are— (a) restricted securities or a restricted interest in securities, or (b) convertible securities or an interest in convertible securities, the consideration for the acquisition shall (subject to section 119A) be taken to be equal to the aggregate of the actual amount or value given for the employment-related securities and any amount that constituted earnings under Chapter 1 of Part 3 of ITEPA 2003 (earnings) in respect of the acquisition. (2) Subsection (1) above applies only to the individual making the acquisition and, accordingly, is to be disregarded in calculating the consideration received by the person from whom the employment-related securities are acquired. (3) This section has effect in relation to acquisitions on or after the day appointed under paragraph 3(2) of Schedule 22 to the Finance Act 2003. (4) In this section “employment-related securities” has the same meaning as in Chapters 1 to 4 of Part 7 of ITEPA 2003 (as substituted by Schedule 22 to the Finance Act 2003). (5) In this section— - “restricted interest in securities”, and - “restricted securities”, - have the same meaning as in Chapter 2 of that Part of ITEPA 2003 (as so substituted). (6) In this section “convertible securities” has the same meaning as in Chapter 3 of that Part of ITEPA 2003 (as so substituted).

53

In section 149B (employee incentive schemes: conditional interests in shares), after subsection (4) insert—

(5) This section does not apply to acquisitions on or after the day appointed under paragraph 3(2) of Schedule 22 to the Finance Act 2003. (6) References in this section to ITEPA 2003 are to that Act as originally enacted.

54

(1) In section 288 (interpretation), after subsection (1) insert—

(1A) If any employment-related securities option would not otherwise be regarded as an option for the purposes of this Act, it shall be so regarded; and the acquisition of securities by an associated person pursuant to an employment-related securities option is to be treated for the purposes of this Act as the exercise of the option. Expressions used in this subsection and Chapter 5 of Part 7 of ITEPA 2003 have the same meaning in this subsection as in that Chapter.

(2) Sub-paragraph (1) has effect in accordance with the provision made for the substitution of Chapter 5 of Part 7 of the Income Tax (Earnings and Pensions) Act 2003 (c. 1).

55

(1) The Social Security Contributions (Share Options) Act 2001 (c. 20) is amended as follows.

(2) The amendments of that Act have effect on and after the day appointed under paragraph 3(2).

56

In section 2(3)(b) (effect of notice under section 1), insert at the end “ (less any deductible amounts under section 480(1) to (6) of that Act). ”.

57

(1) Section 3 (special provision for roll-overs) is amended as follows.

(2) In subsection (4)—

(a) in paragraph (a), for “section 485(1) to (4)” substitute “ section 483(1) to (4) ”, and

(b) insert at the end of paragraph (b)(i) “ (less any deductible amounts under section 480(1) to (6) of that Act). ”.

(3) In subsection (6), for “485(1) to (3)” substitute “ 483(1) to (3) ”.

(4) In subsection (11)(a), insert at the end “ (less any deductible amounts under section 480(1) to (6)); ”.

58

In section 5(2)(c) (interpretation), for “483(1)” substitute “ 477(6) ”.

59

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

60

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

61

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

62

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

63

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64

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

65

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66

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67

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68

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69

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70

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

71

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

72

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73

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SCHEDULE 23

Part 1 — General provisions

Introduction

1

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Requirements for relief

2

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Business must be within the charge to corporation tax

3

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Kind of shares acquired

4

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part 2 — Award of shares

Introduction

5

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The company whose shares are acquired

6

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income tax position of employee

7

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount of relief

8

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

How relief is given

9

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Timing of relief

10

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part 3 — Grant of option

Introduction

11

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The company whose shares are acquired

12

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Takeover of company whose shares are subject of option

13

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income tax position of the employee

14

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount of relief

15

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

How relief is given

16

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Timing of relief

17

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part 4 — Provisions applying in case of restricted shares

Introduction

18

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of shares being “subject to forfeiture”

19

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income tax position of the employee in case of shares subject to forfeiture

20

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount of relief in case of shares subject to forfeiture

21

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Timing of relief in case of shares subject to forfeiture

22

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part 5 — Supplementary provisions

Transfer of business within a group

23

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Relationship between relief and other deductions: priority of deductions under SIP code

24

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Relationship between relief and other deductions: exclusion of other deductions

25

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “employment”

26

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exercise of option after death of employee or recipient

27

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “group company” and “parent company”

28

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “consortium” and “commercial association of companies”

29

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Minor definitions

30

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Index of defined expressions

31

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part 6 — Commencement and transitional provisions

Commencement

32

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Transitional provisions

33

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SCHEDULE 24

Restriction of deductions

1

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

“Provision of qualifying benefits”

2

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

“Qualifying expenses”

3

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Payment “out of” employee benefit contributions

4

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Transfer of asset to employee

5

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Provisional calculation of profits

6

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Life assurance business

7

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Deductions to which Schedule does not apply

8

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Interpretation

9

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consequential amendments

10

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Commencement and transitory provisions

11

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SCHEDULE 25

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SCHEDULE 26

Introduction

1

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Brokers

2

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Investment managers

3

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Investment managers: the 20% rule

4

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Investment managers: application of 20% rule to collective investment schemes

5

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Lloyd’s agents

6

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

General supplementary provisions

7

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SCHEDULE 27

Taxes Act 1988

1

(1) The Taxes Act 1988 is amended as follows.

(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) In Schedule 15 (qualifying policies), in paragraph 24 (policies issued by non-resident companies), in sub-paragraph (3)(b) (twice) and (c) for “branch” substitute “ permanent establishment ”.

Taxation of Chargeable Gains Act 1992

2

(1) The Taxation of Chargeable Gains Act 1992 (c. 12) is amended as follows.

(2) In section 10 (non-resident with United Kingdom branch or agency)—

(a) omit subsection (3); and

(b) in subsection (4), omit “or corporation tax”.

(3) In sections 13(5)(d), 25(7)(b), ... 139(1A), 140A(2), 159(4)(b), 171(1A), 175(2AA), 179(1A), 190(2)(b) and (3)(b), 199(6)(b) and 228(6)(b), and in Schedule 7A, paragraph 1(3A), for “10(3)” substitute “ 10B ”.

Finance Act 1993

3

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Finance Act 1995

4

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7

Omit section 129 of the Finance Act 1995 (c. 4) (limit on income chargeable on non-residents: corporation tax).

Finance Act 1996

8

In Schedule 15 to the Finance Act 1996 (c. 8) (loan relationships: transitional provisions), in paragraph 8(6)(c)—

(a) for “10(3)” substitute “ 10B ”, and

(b) for “on a disposal by a branch or agency” substitute “ attributable to a permanent establishment ”.

Finance Act 2000

9

In Schedule 15 to the Finance Act 2000 (c. 17) (corporate venturing scheme), in paragraph 79(5) (gain accruing on chargeable event), for “section 10” substitute “ section 10B ”.

SCHEDULE 28

Part 1 — Reporting limits

1

After section 3 of the Taxation of Chargeable Gains Act 1992 (c. 12) insert—

(3A) (1) Where in the case of an individual— (a) the amount of chargeable gains accruing to him in any year of assessment does not exceed the exempt amount for that year, and (b) the aggregate amount or value of the consideration for all chargeable disposals of assets made by him in that year does not exceed four times the exempt amount for that year, a statement to that effect is sufficient compliance with so much of any notice under section 8 of the Management Act as requires information for the purposes of establishing the amount in which he is chargeable to capital gains tax for that year. (2) For the purposes of subsection (1)(a) above— (a) the amount of chargeable gains accruing to an individual in a year of assessment for which no deduction falls to be made in respect of allowable losses is the amount after any reduction for taper relief; (b) the amount of chargeable gains accruing to an individual in a year of assessment for which such a deduction does fall to be made is the amount before deduction of losses or any reduction for taper relief. (3) For the purposes of subsection (1)(b) above a “chargeable disposal” is any disposal other than— (a) a disposal on which any gain accruing is not a chargeable gain, or (b) a disposal the consideration for which is treated by virtue of section 58 (husband and wife) as being such that neither a gain nor a loss would accrue. (4) Subsection (1) above applies to personal representatives (for the year of assessment in which the individual in question dies and for the next 2 following years) as it applies to an individual. (5) Subsection (1) above applies to the trustees of a settlement in accordance with Schedule 1. (6) In this section “exempt amount” has the meaning given by section 3 (read, where appropriate, with Schedule 1).

2

(1) In the heading to Schedule 1 to that Act (application of exempt amount in cases involving settled property) after “Exempt Amount” insert “ And Reporting Limits ”.

(2) In paragraph 1 of that Schedule (trustees for person with a disability) after sub-paragraph (5) insert—

(5A) In its application to the trustees of a settlement, section 3A(1) has effect with the substitution for the reference to section 8 of the Management Act of a reference to section 8A of that Act.

(3) In paragraph 2 of that Schedule (other trustees) after sub-paragraph (6) insert—

(6A) In its application to the trustees of a settlement, section 3A(1) has effect with the substitution for the reference to section 8 of the Management Act of a reference to section 8A of that Act.

Part 2 — Annual exempt amount

3

(1) Section 3 of the Taxation of Chargeable Gains Act 1992 (c. 12) is amended as follows.

(2) Omit subsection (6).

(3) In subsection (7) for “subsections (1) to (6)” substitute “ subsections (1) to (5C) ”.

(4) After that subsection insert—

(7A) As they apply by virtue of subsection (7) above— (a) subsection (5A) has effect with the omission of paragraph (b), and (b) subsection (5B) has effect with the omission of the words “or (b)”.

4

(1) Paragraph 1 of Schedule 1 to that Act is amended as follows.

(2) In sub-paragraph (1), in the words following paragraph (b)—

(a) for “section 3(1) to (6)” substitute “ sections 3(1) to (5C) and 3A ”;

(b) at the end insert “ , but with the modifications specified in this paragraph ”.

(3) After sub-paragraph (2) insert—

(2A) As they apply by virtue of sub-paragraph (1) above— (a) section 3(5A) has effect with the omission of paragraph (b), and (b) section 3(5B) has effect with the omission of the words “or (b)”.

(4) In sub-paragraph (3)—

(a) for “section 3” substitute “ sections 3 and 3A(1)(a) ”;

(b) after “the exempt amount for the year”, where it first occurs, insert “ (except the one in section 3(2)) ”.

(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5

(1) Paragraph 2 of that Schedule is amended as follows.

(2) In sub-paragraph (1) for “section 3(1) to (6)” substitute “ sections 3(1) to (5C) and 3A ”.

(3) In sub-paragraph (2)—

(a) for “subsections (1) and (5)” substitute “ section 3(1), (5A), (5B) and (5C) ”;

(b) after “section 3(1), (5A), (5B) and (5C)” insert “ and section 3A(1)(a) ”.

(4) After sub-paragraph (2) insert—

(2A) As they apply by virtue of sub-paragraph (1) above— (a) section 3(5A) has effect with the omission of paragraph (b), and (b) section 3(5B) has effect with the omission of the words “or (b)”.

(5) Omit sub-paragraph (3).

(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6

In the first column of the Table in section 98 of the Taxes Management Act 1970 (c. 9) (penalty for failure to furnish particulars etc), at the appropriate place insert— “ Paragraph 1(7) of Schedule 1 to the 1992 Act. ”.

Part 3 — Commencement

7

The amendments in paragraphs 1, 2, 3(2) and (3), 4(2)(a) and (4)(a) and 5(2), (3)(b) and (5) of this Schedule apply in relation to any notice under section 8 or, as the case may be, section 8A of the Taxes Management Act 1970 given in relation to the year 2003-04 or any subsequent year of assessment.

8

The amendments in paragraphs 3(4), 4(2)(b), (3) and (4)(b) and 5(3)(a) and (4) of this Schedule shall be deemed always to have had effect.

9

The amendments in paragraphs 4(5), 5(6) and 6 of this Schedule have effect in relation to any notice given in respect of the year 2002-03 or any subsequent year of assessment, except that the amendment in paragraph 6 has effect only in relation to such a notice given after the passing of this Act.

SCHEDULE 29

Introduction

1

Schedule 4C to the Taxation of Chargeable Gains Act 1992 (c. 12) (transfers of value: attribution of gains to beneficiaries) is amended as follows.

Scope and scheme of Schedule

2

For paragraphs 1 and 2 (introduction and general scheme of Schedule) substitute—

(1) (1) This Schedule applies where the trustees of a settlement (“the transferor settlement”) make a transfer of value to which Schedule 4B applies (“the original transfer”). (2) Where this Schedule applies, the following gains— (a) any Schedule 4B trust gains accruing by virtue of the transfer (see paragraphs 3 to 7), and (b) any outstanding section 87/89 gains of the transferor settlement at the end of the year of assessment in which the transfer is made (see paragraph 7A), are pooled for the purpose of attributing them, in accordance with this Schedule, to beneficiaries who receive capital payments. Paragraph 7B provides for further gains to be brought into the pool in the case of a further transfer of value. (3) The gains mentioned in sub-paragraph (2) are referred to in this Schedule as “Schedule 4C gains” and the pool is referred to as the transferor settlement’s “Schedule 4C pool”. (4) Paragraphs 8 to 9 provide for the attribution of gains in a settlement’s Schedule 4C pool. (5) References in this Schedule to a transfer to which Schedule 4B applies include any such transfer, whether or not any chargeable gain or allowable loss accrues under that Schedule by virtue of the transfer.

Other gains to be brought into Schedule 4C pool

3

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Attribution of gains to beneficiaries

4

(1) For paragraphs 8 and 9 (attribution of gains to beneficiaries) substitute—

(8) (1) The gains in a settlement’s Schedule 4C pool at the end of any year of assessment are treated as chargeable gains accruing in that year to beneficiaries who receive in that year, or have received in an earlier year, capital payments from the trustees of any settlement that is a relevant settlement in relation to the pool. Paragraph 8A defines “relevant settlement” for this purpose. (2) The attribution of chargeable gains to beneficiaries under this paragraph shall be made in proportion to, but shall not exceed, the amounts of the capital payments made to them. Paragraphs 8B and 8C provide for the matching of gains with available capital payments. (3) A chargeable gain shall not be treated as accruing to a beneficiary under this Schedule unless he is chargeable to tax for that year of assessment. (4) For the purposes of this Schedule a beneficiary is “chargeable to tax” for a year of assessment if, and only if— (a) he is resident in the United Kingdom for any part of that year or is ordinarily resident in the United Kingdom for that year, and (b) he is domiciled in the United Kingdom for any part of that year. (5) Any gains in a settlement’s Schedule 4C pool that are not attributed to beneficiaries in a year of assessment are carried forward to the following year of assessment, when this paragraph applies again. (8A) (1) This paragraph specifies what settlements are relevant settlements in relation to a Schedule 4C pool. (2) The transferor and transferee settlements in relation to the original transfer of value are relevant settlements. (3) If the trustees of any settlement that is a relevant settlement in relation to a Schedule 4C pool— (a) make a transfer of value to which Schedule 4B applies, or (b) make a transfer of settled property to which section 90 applies, any settlement that is a transferee settlement in relation to that transfer is also a relevant settlement in relation to that pool. (4) If the trustees of a settlement that is a relevant settlement in relation to a Schedule 4C pool make a transfer of value to which Schedule 4B applies, any other settlement that is a relevant settlement in relation to that pool is also a relevant settlement in relation to the Schedule 4C pool arising from the further transfer. (8B) (1) The following rules apply as regards the attribution of the gains in a settlement’s Schedule 4C pool to beneficiaries of relevant settlements. This paragraph has effect subject to paragraph 8C (order of attribution as between gains in Schedule 4C pool and other trust gains). (2) Gains of earlier years are attributed to beneficiaries before gains of later years. (3) For the purposes of this Schedule the year of a gain is determined as follows— (a) a Schedule 4B trust gain is a gain of the year of assessment in which the transfer of value in question takes place; (b) a section 87/89 gain is a gain of the year of assessment in which it first forms part of a settlement’s trust gains in accordance with section 87(2). (4) Gains of the same year are matched with available capital payments made at any time by trustees of any relevant settlement. (5) If gains of one year are wholly matched, gains of the next year are then matched, and so on. (6) The gains are attributed to beneficiaries in proportion to, but not so as to exceed, the amount of available capital payments received by them. (8C) (1) Where in a year of assessment— (a) gains in a settlement’s Schedule 4C pool fall to be attributed to beneficiaries of relevant settlements, and (b) one or more of those settlements also have gains that fall to be attributed to beneficiaries under section 87(4) or 89(2), the provisions of paragraph 8B have effect as follows. (2) The rules in that paragraph apply in relation to all the gains falling to be so attributed. (3) As between gains of the same year, Schedule 4C gains are attributed to beneficiaries before other gains. (9) (1) In any year of assessment capital payments made to a beneficiary by the trustees of a relevant settlement, in that year or any earlier year, are available for the purposes of paragraphs 8 to 8C subject to the following provisions. (2) A capital payment is no longer available to the extent that chargeable gains have, by reason of it, been treated as accruing to the recipient in an earlier year of assessment— (a) under this Schedule, or (b) under section 87(4) or 89(2). (3) Capital payments received— (a) before 21st March 2000, or (b) before the year of assessment preceding the year of assessment in which the original transfer of value was made, shall be disregarded.

(2) After paragraph 12 insert—

(12A) (1) This paragraph applies where by virtue of section 10A an amount of gains would (apart from this Schedule) be treated under section 87 as accruing to a person (“the beneficiary”) in the year of return by virtue of a capital payment made to him in an intervening year. (2) Where this paragraph applies, a capital payment equal to so much of that capital payment as exceeds the amount otherwise charged shall be deemed for the purposes of this Schedule to be made to the beneficiary in the year of return. (3) The “amount otherwise charged” means the total of any chargeable gains attributed to the beneficiary under section 87(4) or 89(2) by virtue of the capital payment. (4) For the purposes of paragraph 13(5)(b) a deemed capital payment under this paragraph shall be treated as made when the actual capital payment mentioned in sub-paragraph (1) above was made. (5) Expressions used in this paragraph and section 10A have the same meanings in this paragraph as in that section

Gains attributed to settlor

5

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Minor and consequential amendments

6

(1) In paragraph 10(1) for “of the transferor settlement, or of any transferee settlement,” substitute “ of any relevant settlement ”.

(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) After paragraph 13 insert—

(13A) Where a settlement ceases to exist after the trustees have made a transfer of value to which Schedule 4B applies, this Schedule has effect as if a year of assessment had ended immediately before the settlement ceased to exist.

SCHEDULE 30

Introductory

1

The Capital Allowances Act 2001 (c. 2) is amended as follows.

Types of expenditure for which first-year allowances available

2

In section 39—

(a) after “under” insert “ any of the following provisions ”;

(b) at the end of the entry relating to section 45E, omit “or”;

First-year qualifying expenditure on environmentally beneficial plant or machinery

3

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

General exclusions affecting first-year qualifying expenditure

4

(1) In section 46(1)—

(a) after “under” insert “ any of the following provisions ”;

(b) at the end of the entry relating to section 45E, omit “or”;

(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount of first-year allowances

5

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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