When does the charge under section 449 of ITEPA 2003 not apply to restricted shares?

Section 452 provides that no charge arises under section 449 where a charge has already been taken under section 427 on conditional shares for the same event, where the employee has not been a director or employee within the past seven years, or where the shares are in a dependent subsidiary subject to section 453.

What is the seven-year employment test in section 452 of the Income Tax (Earnings and Pensions) Act 2003?

The seven-year employment test means no charge arises under section 449 if the employee has not been a director or employee of the relevant company, or any associated company, at any point during the seven years ending with the chargeable event. Shares acquired by connected persons are treated as acquired by the employee for this purpose.

Why are shares in dependent subsidiaries excluded from the section 449 charge?

Shares in dependent subsidiaries are excluded from the section 449 charge because they are instead subject to a separate tax charge under section 453 of ITEPA 2003. The test for whether shares fall within a dependent subsidiary is applied immediately before the chargeable event occurs, ensuring appropriate taxation under the correct provision.

How does section 452 prevent a double tax charge on conditional shares?

Section 452 prevents a double charge by giving priority to section 427, which deals with conditional shares. If a tax charge has already arisen under section 427 in respect of the same event that would otherwise trigger a section 449 charge, then no further charge is taken under section 449, avoiding taxation of the same event twice.

Income Tax (Earnings and Pensions) Act 2003 section 452

Cases outside charge under section 449

Section 452 identifies the circumstances in which a charge that would otherwise arise under section 449 (on shares ceasing to be subject to restrictions) does not apply.

No charge arises under section 449 if a charge has already been taken under section 427 in respect of the same event, as the charge on conditional shares takes priority.
No charge arises if the employee has not been a director or employee of the company, or of an associated company, at any time during the seven years ending with the chargeable event.
Shares in dependent subsidiaries are excluded from the section 449 charge because they are instead subject to a separate charge under section 453.
Where shares acquired by connected persons are involved, these are treated as if acquired by the employee, so the same rules apply.

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