Income Tax (Earnings and Pensions) Act 2003 section 43

Further requirements to be met as to replacement option [ITEPA 2003 Sch 5 para 43]

Section 43 sets out the additional conditions that must be satisfied for a new share option to qualify as a valid replacement option when a company is acquired.

• The new option must be granted because of the holder's employment with the acquiring company (or another group member if the acquirer is a parent company), and it must satisfy the purpose, maximum value, and general option requirements at the point the old option rights are released
• The acquiring company must independently meet the independence requirement and the trading activities requirement at the time the old option rights are released
• The total market value of shares under the old option immediately before the release must equal the total market value of shares under the new option immediately after it is granted, and the employee's total purchase cost must remain the same
• For the purposes of testing the maximum value limit, the value of shares in the acquiring company subject to the new option is deemed equal to the value of shares that were subject to the old option immediately before the release, calculated in accordance with the existing valuation rules