Securities disposed of for more than market value

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

  • Securities disposed of for more than market value
  • When does a charge arise?
  • Calculating income tax charge on disposal for more than market value
  • Gray's Timber
  • Practical points arising from Gray's Timber
  • Reporting obligations
  • Associated persons
  • HMRC Guidance

Securities disposed of for more than market value

This note deals with the specific rules contained within sections 446X–446Z of Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003 ) (Part 7, Chapter 3D) that apply when employment-related securities are disposed of for more than their market value. The rules apply to all types of employment-related securities whether or not they are restricted, convertible or acquired pursuant to a securities option (see: What is an employment-related security?).

The rules are based upon the principle that shares or securities would naturally be sold for their market value so any excess disposal proceeds must arise by virtue of the fact that they are employment-related. An income tax (and possibly NICs) charge is therefore imposed by reference to such excess above market value on the relevant employee or director (and employer's NICs may be payable by the employing company).

This income tax charge is in addition to any capital gains tax (or income tax) charge arising on any gain made on a sale up to market value. An employee or director disposing of employment-related securities for more than market value will not also be subject to capital gains tax (as well as income tax) on the excess disposal proceeds above market value.

Note that the income tax charge on any excess proceeds above market value will apply upon a disposal of

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