Employment-related securities

Produced by Tolley
Employment-related securities

The following Personal Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Employment-related securities
  • Introduction
  • Exclusions from the ERS rules
  • Restricted securities
  • Convertible securities
  • Charge on acquisition
  • Subsequent chargeable events
  • Interaction with disguised remuneration rules
  • Securities with artificially depressed market value
  • Charge on acquisition
  • More...

Introduction

Employment-related securities (ERS) broadly means that the shares or securities in question are acquired in connection with an employment. The term ‘securities’ is widely defined in ITEPA 2003, s 420. ‘Securities’ includes shares, debentures, loan stock and financial instruments such as options, futures, contracts for differences and rights under contracts of insurance.

The ERS legislation is complex and it is not possible to cover all the areas comprehensively in this guidance note. This is an overview of the ERS legislation, focused on common scenarios, including potential pitfalls associated with ERS in a management buy-out (MBO). Links are included to Simon’s Taxes for further commentary, where appropriate.

The rules that govern the tax treatment of ERS are listed below:

Type of securityLegislationDetailed commentary
Restricted securitiesITEPA 2003, ss 422–432ERSM30000; Simon’s Taxes E4.507B–E4.507FA
Convertible securitiesITEPA 2003, ss 435–444ERSM40000; Simon’s Taxes E4.507G–E4.507L
Securities with artificially depressed market valueITEPA 2003, ss 446A–446JERSM50000; Simon’s Taxes E4.507M–E4.507QA
Securities with artificially enhanced market valueITEPA 2003, ss 446K–446PERSM60000; Simon’s Taxes E4.507R–E4.507TA
Securities acquired for less than market valueITEPA 2003, ss 446Q–446WERSM70000; Simon’s Taxes E4.507U–E4.507W
Securities disposed of for more than market valueITEPA 2003, ss 446X–446ZERSM80000; Simon’s Taxes E4.507X–E4.507Y
Post-acquisition benefits from securitiesITEPA 2003, ss 447–450ERSM90000; Simon’s Taxes E4.507Z–E4.508A
Shares in research institution spin-out companiesITEPA 2003, ss 451–460ERSM100000; Simon’s Taxes E4.508AA–E4.508AD
Securities optionsITEPA 2003, ss 471–484ERSM110000; Simon’s Taxes E4.508H–E4.508O

The taxation of ERS for internationally mobile employees is covered in ERSM160000, the Employment-related securities: internationally mobile employees guidance note and Simon’s Taxes E4.1324.

Exclusions from the ERS rules

It should be noted that, even where there is a connecting employment, the securities that have been acquired may fall into one of the general exclusions from the ERS rules. The most commonly applicable exclusion is where the ERS is made available in the normal course of a domestic, family or personal relationship with the employee and not by reason of employment.

Note that the text in ERSM20220, which extended the exception to situations where shares were issued directly by the

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