Restricted Securities
The Income Taxes (Earnings & Pensions) Act 2003 contains extensive legislation governing the tax treatment of restricted securities. This flowchart is intended to provide a quick guide to its main principles.
| Do the rules apply to your situation? |
|
|
|
| |
|
|
| They apply to any share (or other security) acquired through employment which is subject to a restriction. |
|
|
|
| |
|
|
| What sort of things count as restrictions? |
|
|
|
| |
|
Examples |
| Anything which might reduce the share's value. |
|
|
| Obligation to sell for less than market value
No dividend rights
No voting |
|
| What is the effect of the new rules? |
|
|
|
| |
|
|
| If the restriction is ever removed, income tax is charged (and NI if the shares are liquid). |
|
|
| Rick acquires a share in his employer with restrictions which reduce its value from £2 to £1, i.e. by 50%. He pays £1.
After three years, the restrictions are removed, and the share is worth £4. Income tax (and any NIC) is payable on 50% of £4. |
|
| Or instead, the Company and the shareholder can elect to pay tax (and any NI) when the shares are acquired, on any difference between the value of the shares if they had no restrictions and the amount actually paid for them. |
|
|
| Rick acquires a share with restrictions which reduce its value from £2 to £1, i.e. by 50%. He pays £1.
He and the Company elect for income tax (and any NIC) to be paid on that £1 discount. No further income tax or NIC is payable when the restrictions are removed. |
|
|
