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Examples

»Ê¹ÚÌåÓýapp following two examples illustrate the characteristics of avoidance schemes which have sought to reduce Income Tax and NICs by reducing the value of a security, either before or after acquisition, and are counteracted by Chapter 3A.

Example 1: Transactions that depress the value of shares before acquisition

• Options granted over the majority of the value of a company to a family trust or similar person, with whom there is a special relationship, before shares are acquired by employees;
• Valuable options owned by a supposed third party that are never exercised;

»Ê¹ÚÌåÓýapp granting of the option is often a depreciatory transaction that artificially depresses the value of the shares before they are given to the director in an attempt to avoid a significant charge on the director at acquisition.

Example 2: securities value depressed after acquisition

• »Ê¹ÚÌåÓýapp company used (referred to as a special purpose vehicle or SPV) is incorporated offshore and resident in UK by central management and control, or is an unlimited UK company. This is to allow Schedule F treatment on dividends paid
• A large dividend or other payment reduces the value of a company for no commercial reason;
• When a chargeable event occurs, e.g. forfeiture or the lifting of a restriction, the shares are worth very little compared to their original value.

»Ê¹ÚÌåÓýapp payment of the dividend or similar is the depreciatory transaction that artificially depresses the value of the shares before there is a post-acquisition chargeable event under Chapter 2.

An alternative scheme to extract cash involved, in place of the dividend, a loan to the employee repayable to the SPV in a fast-depreciating currency.