Restricted assets Flashcards
Steps - Restricted shares, forefeit if leave the company within 3 years
Decribe: The share aquired are restircted as the employee will forfeight their shares if they leave the company within three years
Impact: As the restrictions on the shares will cease within 5 years and no election has been made then their will be no charge to employment income on aquistion.
Note: The employee paid X% of the unrestricted market value at aquisiton
(based on amount actually paid) if no consideration then nil
Subsequently: There will be a charge to employement income when the restrtion is lifted
MV @ date restrcition lifed * Y%
If sold: Proceeds - Cost - amount charged to employment income.
What are the two possible elections
S425 (3) - Disapply the 5 year rule. Employment charge on aquistion based on the restricted value at aquistion
S431 - Ignore all the restrictions. Charge as employment income is based on the unrestricted market value at the date of aquisition
Subsequently no charge of employment income when the restriction is uplifted
Two types of restrictions
Shares subject to forfeit e.g. if leave - 5 year rule applied
Shares subject to a disposal restrcition - no 5 year rule
Benefits of S425 (3)
If the shares are not forfeited and the MV goes up between aquistion and restriction lifting then overall liability will be lower
If the shares are forfeighted the tax paid on aquisiton can not be recovered
If the shares go down in value paid tax.
Admin for the claims
Joint election employee/ employer needs to be made 14 days from the date of aquisiton. Irrevocable.
Benefits of 431
Over charge to employment income is lower
Cash flow - think 90 day rule if PAYE paid by employer
More charge to capital gain although these are lower rates
When are shares restrcited securities
When there are restrcitions in place and ineffect these restricitons lower the market value of those shares. To stop employers artifically lowering the market value of the shares certain restrictions are put in place
