122A Notional loans relating to shares, etc.
(1) In this section—
“connected person” has the same meaning as in section 10;
“emoluments” has the same meaning as in section 113;
“employee” and “employer” have the same meanings, respectively, assigned to them by section 122;
“employment” has the same meaning as in section 121;
“market value” shall be construed in accordance with section 548;
“preferential loan” has the same meaning as in section 122;
“shares” includes securities within the meaning of section 135 and stock.
(2) Where an employee, or a person connected with him or her, acquires shares in a company (whether the employing company or not) and those shares are acquired at an under-value in pursuance of a right or opportunity available by reason of his or her employment, he or she shall be deemed to have the benefit of a loan on which no interest is payable (in this section referred to as the “notional loan”) made directly or indirectly to him or her by a person who at the time the loan is made is, or who at a time subsequent to the making of the loan becomes, an employer in relation to the individual and such notional loan shall be deemed to be a preferential loan to which section 122 applies.
(3) This section shall apply, subject to Chapter 1 of Part 17, for a year of assessment in which an individual has, in accordance with subsection (2), a notional loan and in this section—
(a) references to shares being acquired at an under-value are references to shares being acquired either without payment for them at the time or being acquired for an amount then paid which is less than the market value of fully paid-up shares of that class (in either case with or without obligation to make payment or further payment at some later time), and
(b) any reference, in relation to any shares, to the under-value on acquisition is a reference to the market value of fully paid-up shares of that class less any payment then made for the shares.
(4) The amount initially outstanding of the notional loan shall be so much of the under-value on acquisition as is not chargeable to tax as an emolument of the employee, and—
(a) the loan shall remain outstanding until terminated under subsection (5), and
(b) payments or further payments made for the shares after the initial acquisition shall go to reduce the amount outstanding of the notional loan.
(5) The notional loan shall terminate on the occurrence of any of the following events—
(a) the whole amount of it outstanding is made good by means of payments or further payments made for the shares;
(b) the case being one in which the shares were not at the time of acquisition fully paid up, any outstanding or contingent obligation to pay for them is released, transferred or adjusted so as no longer to bind the employee or any person connected with him or her;
(c) the shares are so disposed of by surrender or otherwise that neither he nor she nor any such person any longer has a beneficial interest in the shares;
(d) the employee dies.
(6) If the notional loan terminates in a manner referred to in subsection (5) (b) or (c), the provisions of section 122(3) shall apply as if an amount equal to the then outstanding amount of the notional loan had been released or written off from a loan within that section.
(7) Where shares are acquired, whether or not at an under-value but otherwise as mentioned in subsection (2), and—
(a) the shares are subsequently disposed of by surrender or otherwise so that neither the employee nor any person connected with him or her any longer has a beneficial interest in them, and
(b) the disposal is for a consideration which exceeds the then market value of the shares,
then, for the year in which the disposal is effected, the outstanding amount of the excess shall be treated as emoluments of the employee’s employment and accordingly chargeable to income tax under Schedule D or Schedule E.
(8) If at the time of the event giving rise to a charge by virtue of subsection (6) the employment in question has terminated, that subsection shall apply as if it had not.
(9) No charge arises under subsection (6) by reference to any disposal effected after the death of the employee, whether by his or her personal representatives or otherwise.
(10) This section applies in relation to acquisition and disposal of an interest in shares less than full beneficial ownership (including an interest in the proceeds of sale of part of the shares but not including a share option) as it applies in relation to the acquisition and disposal of shares, subject to the following:
(a) reference to the shares acquired shall be construed as reference to the interest in shares acquired,
(b) reference to the market value of the shares acquired shall be construed as reference to the proportion corresponding to the size of the interest of the market value of the shares in which the interest subsists,
(c) reference to shares of the same class as those acquired shall be construed as reference to shares of the same class as those in which the interest subsists,
(d) reference to the market value of fully paid-up shares of that class shall be construed as reference to the proportion of that value corresponding to the size of the interest.
(11) In this section, any reference to payment for shares includes giving any consideration in money or money’s worth or making any subscription, whether in pursuance of a legal liability or not.