Jurisdiction(s):
United Kingdom

UK Supreme Court: ITEPA s 471(3) deeming rule prevails; employer or connected-person share options are employment-related and subject to income tax (HMRC v Vermilion Holdings)

Published on: 26 October 2023

Published by a LexisNexis Tax expert

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Article summary

HMRC v Vermilion Holdings Ltd [2023] UKSC 37 Background

This appeal revolved around the construction of ITEPA 2003, s 471. That provision identifies when an option to obtain securities (including company shares) is given ‘by reason of employment’ and so chargeable to income tax rather than capital gains tax. In 2006, Vermilion Holdings Ltd (Vermilion) granted Quest Advantage Ltd (Quest) an option to acquire shares in Vermilion (the 2006 Option). By late 2006, Vermilion’s performance had deteriorated. As part of a rescue funding arrangement, Vermilion and Quest agreed to vary the 2006 Option. In July 2007, they executed a fresh option agreement (the 2007 Option), under which Quest subscribed for a new class of Vermilion shares and the 2006 Option lapsed. In 2016, Quest assigned the 2007 Option to Mr Noble. Quest sought HMRC’s confirmation that the assignment fell within capital gains tax. HMRC refused, stating it was within income tax because it had been conferred on Mr Noble due to his role as a director of Quest. Quest appealed HMRC’s decision to the First-tier Tax Tribunal (FTT). It sought a determination on the proper tax character of the transfer, namely capital gains or income tax. The FTT found that...

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