Income Tax (Earnings and Pensions) Act 2003 section 193

Notional loan where acquisition for less than market value

Section 193 deals with the tax treatment that applies when an employee acquires employment-related shares either for free or at a price below their market value, by treating the discount as a notional interest-free loan.

• Where employment-related shares are acquired for nothing or below market value, the difference between the market value and the amount paid is treated as a taxable benefit.
• Any payments made before the acquisition date count as amounts paid, which reduces the notional benefit accordingly.
• The unpaid amount is treated as an interest-free employment-related loan, and the normal beneficial loan rules in Chapter 7 of Part 3 apply to calculate the tax charge.
• Shares that are not fully paid at the time of issue but later become fully paid are valued at their full market value, not as part-paid shares, when calculating the benefit.