Receipt of shares not emolument from employment

20 April 2011. Published by Adam Craggs, Partner

The First-tier Tribunal has decided that a transfer of shares to an employee was not an emolument from the individuals' employment for the purposes of section 19 ICTA 1988 because the office or employment was not the "active cause" of the transfer.

The case was Rogers v. Revenue & Customs [2011 UK FTT 167].  Shares were transferred to Mr Rogers for a nominal consideration by the majority shareholder in June 2001.  The Tribunal, examining the relevant case law and the facts and circumstances of the transfer, concluded that the employment was not the active or main cause of the transfer.  Instead, the transfer was a "gratuitous transfer" to reflect the majority shareholders' gratuity to the Appellant and was basically in the nature of a testimonial.

One has to remember, however, that this case took place prior to the coming into force of ITEPA 2003, since when it has been unusual for a gift of shares to an employee not to be subject to income tax as employment income.  This is because Part 7 of ITEPA 2003 deems shares acquired from an employer or from a person connected with the employer to be employment related.  However, in certain circumstances, shares acquired by employees will not be deemed to be by reason of employment, for example, they may be acquired from a shareholder unconnected with the employing company.  In these circumstances, existing case law examining whether payments are received by reason of employment will still be helpful and Rogers contains a useful summary of the principles established in case law.

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