CheckLists.Tax (beta)
D3. Enhancement and variation of assets/rights
EMPLOYMENT INCOME
- Employer enhancing the value of employee's asset
-
PAYE
- If the enhancement is achieved by satisfying a legal entitlement to money, the ordinary PAYE rules will apply.
- If not, PAYE applies if the enhancement is of a readily convertible asset (ITEPA s.697; EIM11860).
Legislation:
Cases:
HMRC manuals: EIM11860 - PAYE: special type of income: a payment that enhances the value of an existing asset;
Commentary:
See also:
Options
- Varying EMI option
- Minor alterations that do not affect terms of option + do not increase value of shares that may be acquired are "generally acceptable" without affecting date of grant of option (ETASSUM54060).
- Disqualifying event if changes vary terms of option and increase value of shares that may be acquired or result in conditions no longer being met (s.536).
- A more than de minimis change to the fundamental terms of the option to improve rights is regarded as the grant of a new option (ETASSUM54060).
- De minimis alteration is one which makes only a very minor improvement. E.g. allowing exercise immediately prior to exit event or allowing cashless exercise (ETASSUM54060).
Legislation: ITEPA 2003, s.536;
Cases:
HMRC manuals:
Commentary:
See also:
CHARGEABLE GAINS
Capital sum received for modification/variation
- Capital sum as a deemed disposal
General position
- TCGA s.22 treats capital sums derived from assets as giving rise to a deemed disposal.
- "A capital sum received by a person because the terms of a contract to which he was a party have been modified, varied, waived, assigned, terminated, rescinded, relinquished or surrendered will normally fall to be treated as having been derived from the recipient’s contractual rights." (CG13000).
- If the modification/variation was done without T's consent and T takes legal action, the compensation may derive from the right of action.
Capital sum
- Means any money or money's worth not excluded from the consideration taken into account in computing gains (s.22(3)).
Quantum of consideration
- Logically the market value of the capital sum received.
Legislation: TCGA 1992, s.22.
Cases:
HMRC manuals: CG13000 - Capital sums derived from assets: s22(1) TCGA92: contractual rights;
Commentary:
See also:
XX
- Depreciatory transactions
- Depreciatory transaction followed by gift/sale, not within exclusion for arm's length transactions.
- "If an individual took steps which devalued his property on Monday with a view to making a gift thereof on Tuesday he would fail to satisfy the requirements of section 20(4) because the act of devaluation and the gift would be considered together." (Macpherson, at 174).
Legislation:
Cases:
IRC v. Macpherson [1989] AC 159 (HoL);
HMRC manuals:
Commentary:
See also:
PENSIONS TAXATION
- Value shifting from pension scheme in favour of member/employer/connected person: deemed unauthorised payment
General rule
- If:
(1) A relevant event occurs.
(2) The relevant event occurs in a way that differs from what might be expected between arm's length parties.
(3) In connection with that relevant event, the value of an asset held for the purposes of the pension scheme is reduced or a liability is increased.
(4) The value of an asset held by/for the benefit of person is increased or a liability is reduced for the benefit of a person.
(5) That person is/was a member or sponsoring employer or connected with either.
- Then: the registered pension scheme is treated having made an unauthorised payment to that person (s.174 (member); s.181 (employer)).
- Member deceased: payment treated as in respect of member but to person holding asset or liability (s.174(2)).
- Deemed payment is based on difference to what might be expected if parties to transaction were at arm's length (s.174(4)).
Connected persons
- An increase in value/reduction of liability for a person connected with a member/sponsoring employer etc. is treated as for the benefit of the member/sponsoring employer (s.161(7)).
- If member/employer is dead, test connection at date of death.
- Connected person - see ITA 2007, s.993.
Relevant events
- Change in the value of a currency.
- Creation, exercise, failure to exercise, alteration, release etc. of any power, right, option or liability relating to assets or liabilities of the scheme etc. (s.174(3), s.181(2)).
- Examples (PTM133700):
- change of rights attached to shares (e.g. to exclude right to dividend).
- altering the rights on a lease (e.g. to increase rent on lease of property to scheme).
- releasing a restrictive covenant in lease to member.
- No charge if transaction is arm's length (e.g. ordinary rent review on commercial terms).
Tax charges:
- Unauthorised payment charge (s.208).
- Scheme sanction charge on administrator (s.239).
Legislation: FA 2004, s.161; s.174; s.181;
Cases:
HMRC manuals:
Commentary:
See also: