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

Amount of notional loan

Section 446T explains how to calculate the amount of the notional loan that arises when an employee acquires employment-related securities for less than their market value, and how that loan reduces over time.

• The initial notional loan equals the market value of the securities at acquisition (as if fully paid up) minus all deductible amounts such as payments made and amounts already taxed as employment income
• Deductible amounts include any price paid for the securities, any amount already charged to income tax as earnings on the acquisition, and any amounts taxed under the restricted securities, convertible securities, securities options or disguised remuneration rules
• Where earnings or deemed earnings in respect of the acquisition are exempt income (or would be exempt if the relevant charging provisions applied), those exempt amounts are not treated as deductible
• The notional loan outstanding at any later date is reduced by any further payments the employee or acquirer makes for the securities after the original acquisition