Taxation of Chargeable Gains Act 1992 section 149C

Priority share allocations

Section 149C disapplies the market value rule for capital gains purposes when employees or directors acquire shares through a priority share allocation that qualifies for income tax exemption.

• When a company makes a public share offer and gives employees or directors priority in the allocation of shares, a potential capital gains issue arises because the shares may be acquired at less than market value.
• Normally, section 17(1) of the Taxation of Chargeable Gains Act 1992 would treat shares acquired at below market value as if they had been acquired at market value, which could affect the calculation of any future chargeable gain or allowable loss.
• Section 149C switches off this market value rule where the priority share allocation qualifies for income tax exemption under section 542 or section 544 of the Income Tax (Earnings and Pensions) Act 2003.
• The effect is that the employee's or director's actual acquisition cost is used as the base cost for capital gains purposes, preserving the benefit of any discount received through the priority allocation.