Income Tax (Earnings and Pensions) Act 2003 section 531

Limitation of charge on exercise of option to acquire shares below market value

Section 531 limits the income tax charge that arises when an employee exercises a qualifying Enterprise Management Incentive (EMI) option to acquire shares at less than their market value (or at no cost), by capping the taxable gain at a level that reflects the lower of two market values.

• The section applies where the option price is below market value at the date of grant (or the original grant date for a replacement option), or where shares are acquired at nil cost
• The taxable gain is calculated as: Chargeable Market Value minus the sum of the consideration paid for the option and the price paid for the shares
• The Chargeable Market Value is the lower of the market value at the date of grant and the market value at the date of exercise, which caps the charge
• The section is subject to modification where a disqualifying event has occurred