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Section 554M(5) and (6) ITEPA 2003

A fall-back charge will apply if:

• Section 554M has prevented a relevant step from giving rise to Part 7A income, and
• broadly speaking, earmarked shares continue to be earmarked in circumstances in which the conditions for the exclusion are no longer met.

More precisely, under Section 554M(5), a fall-back charge will apply if, at any time (‘the relevant timeâ€�) two conditions are met. »Ê¹ÚÌåÓýappse conditions are bulleted below.

• Any of the earmarked shares cease to be held solely with a view to providing relevant shares or paying a sum of money pursuant to a relevant share option, and the grant of this option meets one of two alternative conditions.

• »Ê¹ÚÌåÓýapp first alternative condition is that this grant is to be made to A as mentioned in Section 554M(1)(a) and is to meet the requirements of Section 554M(1)(b) to (e).
• »Ê¹ÚÌåÓýapp second alternative condition is that this grant is expected to be made to A as mentioned in Section 554M(1)(a) and, if this grant is made, it will meet the requirements of Section 554M(1)(b) to (e).

• Those earmarked shares continue to be held by or on behalf of the relevant third person on a Section 554B basis.

On Section 554M(1)(a) to (e), see EIM45405.

In such a case, Section 554M(6) deems a relevant step to be taken with the following features.

• »Ê¹ÚÌåÓýapp relevant step is within Section 554B.
• It is taken at the relevant time.
• »Ê¹ÚÌåÓýapp subject of the relevant step is:

• the shares which continue to be held as mentioned above, and
• any ‘relevant incomeâ€� in relation to those shares. See EIM45475.

• »Ê¹ÚÌåÓýapp relevant step gives rise to Part 7A income.

»Ê¹ÚÌåÓýapp relevant step gives rise to Part 7A income subject to the exclusion in Section 554A(4) (see EIM45095) and any relevant reliefs.