Budget Notes


Who is likely to be affected?

1. Employees who are taxed on the remittance basis and who receive shares or options as part of their remuneration, and their employers.

General description of the measure

2. Legislation will be introduced in Finance Bill 2008 to bring employees who are resident but not ordinarily resident in the UK, and who receive employment-related securities (ERS), within those provisions of Part 7 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) which currently have effect only for resident and ordinarily resident employees.

3. Where gains on ERS that this measure will bring within Part 7 are partly derived from employment duties in the UK, and partly from duties outside the UK, they will be apportioned appropriately, with gains from ERS related to duties outside the UK being subject to UK Income Tax to the extent that they are remitted.

4. A similar apportionment will be available to individuals who are not domiciled in the UK in certain circumstances.

Operative date

5. The measure will have effect on and after 6 April 2008 in respect of employment-related securities acquired or options granted on or after that date. Securities acquired or options granted on or before 5 April 2008 will not be affected.

Current law and proposed revisions

6. Employment-related securities and securities options are shares and other securities, and options over such shares or securities, which are acquired by an employee by reason of his or her employment. Chapters 1 to 5 in Part 7 of ITEPA provide the income tax rules for employment income from such securities and options.

7. Employees who are not both resident and ordinarily resident in the UK (R/OR) at the time employment-related securities or securities options are acquired are not within the scope of Part 7 of ITEPA, except for Chapters 3A-3D. This means that those who are R/OR at the time of acquisition are subject to all the rules in Part 7, but those who are resident / not ordinarily resident (R/NOR) are only within Chapters 3A-3D of Part 7. Part 7 does not therefore deal with R/NOR employees who receive this type of remuneration in a comparable way to R/OR employees.

8. Changes will be introduced in Finance Bill 2008 to Part 7 of ITEPA which will bring R/NOR employees within all Chapters of the Part 7 regime so that their remuneration from employment related securities or options is subject to the same rules as for R/OR employees. Where such employees are taxed on the remittance basis, the measure will provide apportionment of the ERS income to ensure that that proportion relating to overseas duties will only be subject to Income Tax when it is remitted to the UK.

9. A similar apportionment basis will be available to non-domiciled individuals where the ERS income relates to a foreign employment where the duties are performed wholly outside the UK.

Further advice

10. If you have any questions about this change, please contact Claire Talbot on 020 7147 2867 or Tom Rollinson on 020 7147 2866 (email: shareschemes@hmrc.gsi.gov.uk). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk