What happens when a chargeable event occurs under section 476 of ITEPA 2003?

When a chargeable event occurs in relation to an employment-related securities option, the taxable amount is treated as employment income of the employee for the tax year in which the event takes place. This means it is typically subject to PAYE and National Insurance contributions through the payroll in the normal way.

Who is liable for the tax charge if the employee has been divested of the option by operation of law?

If the employee has been divested of the securities option by operation of law, for example on bankruptcy or death, the income tax charge still applies. However, instead of the employee being liable, the tax falls on the relevant person in relation to the chargeable event. The amount charged is treated as income for income tax purposes.

Which tax-advantaged share schemes are exempt from the section 476 charge?

The charge under section 476 does not apply where the option was granted under a qualifying SAYE option scheme, a CSOP scheme, or under the enterprise management incentives code, provided the relevant exemption conditions are satisfied. In those cases the employee will not face a tax bill under this section when exercising their option.

Can an employee claim relief for National Insurance contributions under section 476?

Yes. Where an amount counts as employment income under section 476, the employee may claim relief if they have borne the cost of the employer's secondary Class 1 National Insurance contributions or a special contribution. This relief reduces the amount on which income tax is charged, lowering the overall tax liability on the securities option gain.

Income Tax (Earnings and Pensions) Act 2003 section 476

Charge on occurrence of chargeable event

Section 476 establishes that when a chargeable event occurs in connection with an employment-related securities option, the resulting taxable amount is treated as employment income and charged to income tax in the tax year the event takes place.

When a chargeable event occurs in relation to an employment-related securities option, the taxable amount counts as employment income for the tax year in which the event takes place.
The taxable amount is calculated under a separate formula, and the charge applies regardless of the employee's residence status or whether the option was originally granted to the employee or assigned to them.
If the employee has been divested of the option by operation of law, income tax is still charged on the taxable amount, but the person liable becomes the relevant person in relation to the chargeable event rather than the employee.
The charge does not apply where the option was granted under an approved SAYE option scheme, a CSOP scheme, or the enterprise management incentives code and the relevant exemption conditions are met.

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