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

Restricted securities and convertible securities

Section 446D modifies how fair market value and market value are determined when employment-related securities are either restricted or convertible.

• Where securities are restricted, their fair market value (FMV) must be calculated as though no restrictions exist, but market value (MV) is not adjusted in this way.
• Because FMV ignores the restrictions, the usual post-acquisition tax charges on restricted securities (under sections 426 to 431) do not apply.
• Where securities are convertible, both FMV and MV must be calculated as though the conversion feature does not exist — the right to convert is disregarded entirely for valuation purposes.
• These modified valuations ensure that any artificially depressed value resulting from restrictions or conversion rights is stripped out when calculating the tax charge.