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

Adjustment of market value: consideration for entitlement to convert

Section 446G adjusts the market value used in calculating whether consideration has been given for the right to convert employment-related securities, where that market value has been artificially depressed through non-commercial actions.

• This section applies where the market value of convertible securities (valued as if they were not convertible) has been reduced by at least 10% due to actions carried out for non-genuine commercial purposes within the 7 years before acquisition.
• Where the section applies, the market value figure (NCMV) used in the section 442 calculation is increased to reverse the effect of the artificial depression, restoring it to what it would have been without the non-commercial actions.
• The practical effect is to reduce or eliminate any allowance that section 442 would otherwise give for consideration attributable to the conversion entitlement, thereby preventing manipulation of the tax charge.
• This anti-avoidance measure ensures that employers and employees cannot use depreciatory transactions to reduce the taxable amount arising when convertible securities are acquired as part of an employment arrangement.