HM Revenue and Customs Brief 16/09
Submit Articles Back to Articles
Issued 2 April 2009
Capital Gains Tax and Income Tax: former shareholders in
Bradford & Bingley plc and members of employee share schemes
This Revenue and Customs Brief sets out our understanding of the
consequences of the transfer of Bradford & Bingley plc into
ownership in relation to the Capital Gains Tax position of former
shareholders in Bradford & Bingley plc, and the income tax and
Capital Gains Tax position of those who held shares and share options
under employee share schemes.
Sections 3 and 4 of The Banking (Special Provisions) Act 2008 give
powers for the Treasury to order the transfer of securities issued by
an authorised UK deposit-taker and powers for extinguishing rights to
subscribe for, or otherwise acquire, securities of the deposit-taker in
question. The powers in sections 3 and 4 were exercised in the Bradford
& Bingley plc Transfer of Securities and Property etc Order
('the Transfer Order') (Statutory Instrument 2008 No 2546) The Transfer
Order came into force on 29 September 2008.
4. Under Article
3 of the Transfer Order the ordinary shares in Bradford &
plc were transferred to the Treasury. Under Article 5 of the Transfer
Order rights (or other entitlement) to receive shares in the company
(whether by subscription, conversion or otherwise) were extinguished.
The rights which were extinguished include rights granted by reason of,
or in connection with, a person's office or employment with Bradford
& Bingley plc or any of its UK subsidiary companies.
5. The Treasury has also made an order for a scheme for
compensation for the transfer of shares and extinguishing of rights to
receive shares. The Bradford & Bingley plc Compensation Scheme
Order 2008 (Statutory Instrument 2008 No 3249) was made on 18 December
2008 and came into force on 19 December. On 10 March 2009, the Treasury
invited applications for the position of independent valuer to assess
any compensation that may be payable. It is hoped that the valuer will
be appointed and begin work in the middle of the year. Further details
can be found on the Treasury
Capital Gains Tax
We consider that the entire loss to the shareholder of his or her
shares under the Transfer Order is an occasion of disposal under
section 24(1) of the Taxation of Chargeable Gains Act 1992 ('TCGA').
The time of the disposal will be 29 September 2008, the date the
Transfer Order came into force, which falls in the tax year 2008-09.
As no consideration was received for the shares, the disposal on 29
September will normally give rise to a loss in respect of any allowable
costs of acquisition, but shareholders who are entitled to receive a
payment under the Compensation Scheme Order should see paragraph 9
below. Where the disposal includes 'free' shares received by the same
holder when Bradford & Bingley demutualised, those shares will
have any cost for capital gains purposes. Further information on the
tax treatment of 'free' shares is contained in Inland Revenue Tax
8. Losses arising under section 24(1) TCGA can
be set against chargeable gains in the usual way. The latest date for
claiming losses arising in 2008-09 is 31 January 2015.
payment under the Compensation Scheme Order will be chargeable to
Capital Gains Tax under section 22(1)(a) TCGA as a capital sum derived
from the recipient's former shareholding. The charge to Capital Gains
Tax will arise in the tax year in which the compensation is received.
Where a former shareholder has not claimed a capital loss under section
24(1) TCGA, see paragraphs 6 to 8 above, any allowable costs incurred
in acquiring the shares may be deducted from the compensation in
arriving at the gain arising under section 22(1)(a) TCGA.
Employee share schemes
10. For shares and share options held by employees under
employee share schemes, there may be income tax consequences.
Tax advantaged schemes
Save As You Earn
Employees with a savings contract under the Save As You Earn (SAYE)
scheme, also known as 'Sharesave', may choose to continue paying
monthly contributions into their savings scheme. When the three year or
five year contract expires, they can receive their savings with a
tax-free bonus. They will no longer have an opportunity to exercise an
option and buy shares at the end of the contract.
12. As a
separate matter, if any compensation is received from the Government
for extinguishing of rights to receive shares (see paragraph 6 above),
the compensation is likely to be the receipt of a benefit in connection
with the SAYE options, so the amount of the benefit will count as
employment income under section 477 Income Tax (Earnings and Pensions)
Act 2003 (ITEPA) in the tax year in which the compensation is received.
Non tax advantaged schemes
Restricted shares within Chapter 2 ITEPA
As no consideration was received when shares were taken into public
ownership on 29 September 2008, there is no 'chargeable event' under
section 427(3) ITEPA and therefore no charge to income tax in 2008-09.
As no consideration was received for the shares, for capital gains
purposes the disposal on 29 September will normally give rise to a loss
in respect of any allowable costs of acquisition, but shareholders who
are entitled to receive a payment under the Compensation Scheme Order
should see paragraph 9 above.
Compensation received in connection with employment-related
Any compensation received from the government in connection with
employment-related securities is likely to be the receipt of a benefit
in connection with those employment-related securities. The amount of
the benefit, to be determined on the facts of each case, will count as
employment income under section 447 ITEPA in the tax year in which the
compensation is received.
Operation of PAYE (Pay As You Earn)
Since Bradford & Bingley shares were not tradeable immediately
before they were disposed of in September 2008, we consider they are
not Readily Convertible Assets (RCA) under section 702(1)(a) ITEPA.
Furthermore, they would have been 'corporation tax deductible' under
Schedule 23 Finance Act 2003, and are therefore not treated as RCA by
Section 702(5A) ITEPA. Therefore, PAYE will not be operable and the
employment income should be returned by the employee via the Self
About the Author
© Crown Copyright 2009.
A licence is need to reproduce this
article and has been republished for educational / informational
purposes only. Article reproduced by permission of HM Revenue &
Customs under the terms of a Click-Use Licence. Tax briefs are updated
regularly and may be out of date at time of reading.
Follow us @Scopulus_News
Article Published/Sorted/Amended on Scopulus 2009-04-04 12:05:44 in Tax Articles