Basics Flashcards
(12 cards)
Where is the law on Restricted Securities found?
Is the taxation set out here?
Chapter 2 (Chapter 2) of Part 7 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003).
Yes.
What is the basic scheme of the legislation?
To tax a proportion of any increase in value of securities that were restricted when they were acquired.
What are typical tax points in relation to related securities?
At the time the restrictions are lifted or varied, or when the securities are sold.
Does Chapter 2 does itself impose an income tax charge on the acquisition of securities?
No, but it can modify the way in which income tax is charged under other provisions.
What is the interaction between value of shares charged to income tax for restricted securities and capital gains tax?
What is the reason for the specific treatment?
The value that has been taxed as income is added to the capital gains tax (CGT).
To prevent double taxation.
Will the value that has been taxed as income normally also be deductible for corporation tax purposes?
Yes.
Why are employee incentives particularly likely to fall into the restricted securities regime?
Because restrictions on employee incentives are often an integral part of employee incentives.
What is the main aim of Chapter 2?
To impose income tax (under PAYE and with NICs, where appropriate) on any untaxed value of restricted securities owned by (or otherwise of benefit to) an employee, when the restrictions are lifted or the restricted securities are sold.
What is the effect of anti-avoidance concerns on the drafting of the restricted securities legislation?
The legislation is more complex, and specific examples of actions falling within the legislation can be hard to provide.
What is the general starting point for taxing securities or interests in securities acquired as a result of employment?
Any value delivered to the employee will be taxed as employment income when received.
Why are specific tax rules on restricted securities required?
Without the special income tax rules, there would be no charge on the falling away or lifting of restrictions on securities, meaning that in many cases (as in many cases there is a big gap between the Actual Market Value and Unrestricted Market Value on a security), the gain in value on the restricted securities would instead fall to CGT. Also note that if income tax is collected under PAYE, then NICs will also be due.
In other words, the securities would largely be treated in a similar way to tax-favoured securities.
What are the three objectives of Chapter 2 f Part 7 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003)?
1) Draw a distinction between the value of a security with restrictions attached to it, and the value of that same security if no restrictions were attached to it.
2) Allow taxpayers to elect out of the restricted securities regime entirely, by permitting them to pay income tax on the security’s market value, ignoring restrictions, at acquisition.
3) Impose income tax on any “untaxed” proportion of a security’s unrestricted market value. This can mean that income tax is payable even if the value of a security has fallen.
