»Ê¹ÚÌåÓýapp

(As always, the following are general examples, and the treatment in specific cases will be determined by the facts.)

»Ê¹ÚÌåÓýapp principles of the formula (see ERSM30400) can be illustrated with a simple example:

Example 1 - share price increases

1,000 restricted securities are given to John Coombs when their restricted market value is 75p per share.

If they were unrestricted their value would have been £1 per share.

»Ê¹ÚÌåÓýapp restriction lifts when unrestricted MV is £5.

»Ê¹ÚÌåÓýapp employee is charged by reference to £750 (75p per share) on acquisition, and at that time 25% of the share value has not be taxed.

»Ê¹ÚÌåÓýapprefore on the lifting of the restriction there is a charge on

1,000 x £5 x 0.25 (or 25%) = £1,250.

»Ê¹ÚÌåÓýapp share are worth £5,000 and the employee has paid tax on £2,000 (£750 on acquisition and £1,250 on the lifting of the restriction). »Ê¹ÚÌåÓýapp other £3,000 in growth is treated as capital subject to CGT but not Income Tax.

Even if the share price goes down there is still, potentially, a charge under Chapter 2.

Example 2 - share price decreases

Sara Collings is given 1,000 restricted shares with an actual market value of 70p, and an unrestricted market value of £1.

»Ê¹ÚÌåÓýapp restriction is lifted at a time when the unrestricted market value has fallen to 60p.

Tax is paid on acquisition of the shares, based on the actual market value of 70p (70% of £1), so £700.

When the restriction lifts, the charge is on 30% of whatever the market value is at that time (whether it is higher or lower). In this case, the liability will be on 30% of 60p (18p), so £180.

Conceptually, it is useful to think of the employee as receiving a share in two instalments:

• firstly, in 70p worth of restricted share, which unfortunately declines to 42p (70% of 60p) and,
• secondly, in 30% of the share received at a later date (when the restriction is lifted), when it is worth 18p (30% of 60p).

So, if the shares were then sold for £600 (1,000 x60p) the employee would have a capital gains tax loss on disposal of £280, calculated by deducting from the sale price of £600 the � cost �, being equal to the two charges to income tax of £700 + £180.