Income Tax (Earnings and Pensions) Act 2003 section 540

No charge on acquisition of shares as taxable benefit

Section 540 ensures that employees who acquire shares by exercising a qualifying EMI option are not subject to a separate tax charge on the notional loan benefit that would otherwise arise on the acquisition of those shares.

• When an employee exercises a qualifying EMI option to acquire shares, the taxable benefit rules on notional loans for share acquisitions do not apply.
• This prevents a double charge: the EMI scheme has its own tax treatment, so the general benefit-in-kind rules for share acquisitions are switched off.
• The exemption specifically disapplies Chapter 3C of Part 7 of the Act, which would otherwise treat the acquisition of shares as giving rise to a notional loan benefit subject to income tax.
• This relief applies only where the shares are acquired through the exercise of a qualifying option under the EMI provisions; other share acquisitions remain subject to the normal taxable benefit rules.