How is the taxable amount calculated under section 446C of ITEPA 2003?

The taxable amount under section 446C is the difference between the fair market value the securities would have had without depreciatory transactions (FMV) and their actual market value at acquisition (MV). This difference is treated as employment income for the tax year in which the acquisition takes place.

What happens if the consideration paid exceeds the actual market value of the securities under section 446C?

If the employee paid more for the securities than their actual market value, MV is set at the consideration amount rather than the lower market value. This reduces the taxable amount and prevents the charge from exceeding the true economic benefit the employee received from the artificial depreciation.

How does section 446C prevent double taxation with Part 7A disguised remuneration?

If the securities were previously subject to a Part 7A relevant step and an amount was already taxed as employment income under Chapter 2 of that Part, MV is increased to match that employment income figure if higher. This ensures the same value is not charged to tax twice under both provisions.

Does section 446C apply differently to restricted or convertible securities?

Yes. The calculation under section 446C is subject to further adjustment under section 446D where the securities are restricted securities or convertible securities. If either feature applies, section 446D modifies the figures used in the section 446C calculation to reflect those additional characteristics.

Income Tax (Earnings and Pensions) Act 2003 section 446C

Amount of charge

Section 446C sets out how to calculate the taxable amount when an employee acquires employment-related securities whose market value has been artificially depressed.

The taxable amount is the difference between what the securities would have been worth without the depreciatory transactions (FMV) and their actual market value (MV)
If the actual market value is lower than the consideration paid for the securities, the consideration amount is used instead as MV
Where the securities were previously subject to a Part 7A relevant step that gave rise to employment income, MV is increased to match that employment income amount if it would otherwise be lower
The calculation is subject to further adjustment under section 446D where the securities are restricted securities or convertible securities

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