Securities acquired for less than market value
Securities acquired for less than market value

The following Tax practice note provides comprehensive and up to date legal information covering:

  • Securities acquired for less than market value
  • When does a notional loan arise?
  • Deferred consideration or partly-paid (or nil paid) shares
  • Deemed employment-related securities
  • Forfeitable restricted securities
  • Calculating the notional loan
  • Tax treatment while notional loan outstanding—annual interest charge
  • Exclusions from annual interest charge on notional loan
  • Exception where ordinary shares acquired in a close company
  • Exception for notional loan under £10,000
  • More...

This practice note deals with the specific rules applying to employment-related securities acquired for less than market value contained within Chapter 3C, Part 7 of Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003). For the meaning of employment-related securities, see: What is an employment-related security?

Where the rules apply, an employee or director acquiring shares or securities:

  1. is treated as receiving an interest-free notional loan (see: Calculating the notional loan), and

  2. is subject to income tax annually upon the benefit of such loan as if it were an actual employment-related loan (see: Tax treatment while notional loan outstanding—annual interest charge).

Further income tax (and possibly NICs) charges can also arise upon the deemed discharge of the notional loan, for example when the securities are disposed of (see: Tax treatment of discharge of notional loan). In this note, these specific rules are referred to as the 'notional loan' provisions.

It is important to note that an employee or director who acquires shares or securities at a discount by reason of their employment will, usually, not be subject to income tax under the notional loan provisions. Instead, the employee or director will be subject to the general charge on earnings from employment, known as the Weight v Salmon charge, under ITEPA 2003, s 62. For more details, see: Earnings—the Weight v Salmon charge. The key circumstances in

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