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

Discharge of notional loan

Section 446U sets out the circumstances in which a notional loan arising from the acquisition of employment-related securities for less than market value is treated as discharged, and the tax consequences that follow.

• The notional loan is discharged if the securities are disposed of to an unassociated person, if outstanding payment obligations are released or adjusted so they no longer bind an associated person, or if something is done to the securities as part of a tax or NIC avoidance arrangement
• When the loan is discharged through one of these trigger events, the amount still outstanding immediately beforehand counts as the employee's employment income for the tax year in which the discharge occurs
• The loan can also be discharged without an income tax charge where associated persons have fully paid for the securities, where the securities and any remaining payment liability are sold together to an unassociated person at a price reflecting that liability, or where the employee dies
• A disposal of the securities does not trigger a discharge if, at the time they were originally acquired, there was already an obligation to make further payments equal to the full amount initially outstanding