Section 506 | Charge on partnership shares ceasing to be subject to plan

(1)When partnership shares cease to be subject to the plan, there may be an amount that counts as employment income of the participant depending on the period that has elapsed between—

(a)the acquisition date in respect of those shares (as defined by paragraph 50(4) or, as the case may be, paragraph 52(5) of Schedule 2), and

(b)the date when they cease to be subject to the plan (“the exit date”).

(2)If the period is less than 3 years, the relevant amount counts as employment income of the participant for the relevant tax year (see subsection (5)).^F1

(2A)Subject to subsection (2B), in subsection (2) “the relevant amount” means the market value of the shares at the exit date.^F2

(2B)If the shares cease to be subject to the plan by virtue of a provision of the kind mentioned in paragraph 43(2B) of Schedule 2 (provision requiring partnership shares to be offered for sale), in subsection (2) “the relevant amount” means the lesser of—^F2

(a)the amount of partnership share money used to acquire the shares, and^F2

(b)the market value of the shares at the time they are offered for sale.^F2

(2C)Paragraph 92(2) of Schedule 2 (market value of shares subject to a restriction) applies for the purposes of subsection (2B)(b).^F2

(3)If the period is 3 years or more but less than 5 years, whichever is the lesser of—

(a)the amount of partnership share money used to acquire the shares, and

(b)the market value of the shares at the exit date,

counts as employment income of the participant for the relevant tax year (see subsection (5)).

(3A)If the shares cease to be subject to the plan by virtue of a provision of the kind mentioned in paragraph 43(2B) of Schedule 2, in subsection (3)(b) the reference to the market value of the shares at the exit date is to be read as a reference to the market value of the shares at the time they are offered for sale (as determined in accordance with paragraph 92(2) of Schedule 2 if relevant).^F3

(4)Where—

(a)subsection (3) applies, and

(b)the applicable amount is the amount of partnership share money used to acquire the shares,

the tax due is reduced by the amount or aggregate amount of any tax paid by virtue of section 501 (charge on capital receipts in respect of plan shares) on any capital receipts in respect of the shares.

(4A)Any tax due under subsection (2) or (3) is reduced by the amount or aggregate amount of any tax paid by virtue of Chapter 3B of this Part in relation to the shares.^F4

(5)The “relevant tax year” is the tax year in which the exit date falls.

(6)No liability to income tax arises by virtue of this section if section 498 (no charge on shares ceasing to be subject to plan in certain circumstances) applies.