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

Adjustment of market value: conditional interests

Section 446F adjusts the market value used in the tax charge on conditional interests in shares where the value has been artificially depressed through non-commercial transactions.

• Where an employee holds a conditional interest in shares and a chargeable event occurs (such as the lifting of forfeiture conditions or disposal), the market value immediately after that event may need to be adjusted if it has been artificially reduced.
• The market value is treated as artificially low if it has been reduced by at least 10% as a result of actions carried out otherwise than for genuine commercial purposes within the relevant period — being the later of 7 years before the chargeable event or 16th April 2003.
• When calculating the tax charge under the original section 428(1) formula, the market value figure (MV) is increased to what it would have been had the artificial reduction not taken place.
• The effect is to ensure that the employment income tax charge on conditional shares reflects the true underlying value of the shares, preventing manipulation through depreciatory transactions designed to reduce the taxable amount.