Finance Act, 1986

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Relief for new shares purchased on issue by employees.

12.—(1) (a) In this section—

“director” has the same meaning as in Chapter III of Part V of the Income Tax Act, 1967 ;

“eligible employee” in relation to a qualifying company means—

(i) where the company is a trading company, a full-time director or full-time employee of the company, or

(ii) where the company is a holding company, a full-time director or full-time employee of the company or of a company which is its 75 per cent. subsidiary;

“eligible shares”, in relation to a qualifying company, means new shares forming part of the ordinary share capital of the company which—

(i) are issued on or after the 6th day of April, 1986,

(ii) are fully paid up,

(iii) throughout the period of five years beginning with the date on which they are issued, carry no present or future preferential right to dividends or to the company's assets on its winding up and no present or future preferential right to be redeemed,

(iv) are not subject to any restrictions other than restrictions which attach to all shares of the same class, and

(v) are issued to and acquired by an eligible employee in relation to the company at not less than their market value at the time of issue;

“full-time director” and “full-time employee” have respectively the same meanings as in section 8 of the Finance Act, 1978 ;

“holding company” means a company whose business consists wholly or mainly of the holding of shares or securities of trading companies which are its 75 per cent. subsidiaries;

“market value” shall be construed in accordance with section 49 of the Capital Gains Tax Act, 1975 ;

“ordinary share capital” has the meaning assigned to it by section 155 (5) of the Corporation Tax Act, 1976 ;

“qualifying company” means a company which is at the time the eligible shares are issued—

(i) incorporated in the State,

(ii) resident in the State and not resident elsewhere, and

(iii) (I) a trading company, or

(II) a holding company;

“trading company” means a company whose business consists wholly or mainly of the carrying on wholly or mainly in the State of a trade or trades.

(b) In this section “75 per cent. subsidiary”, in relation to a company, has the meaning assigned to it for the purposes of the Corporation Tax Acts by section 156 of the Corporation Tax Act, 1976 , as applied for the purposes of section 107 of that Act by subsections (6) and (7) of that section.

(c) References in this section to a disposal of shares include references to a disposal of an interest or right in or over the shares and an individual shall be treated for the purposes of this section as disposing of any shares which he is treated by virtue of paragraph 5 of Schedule 2 to the Capital Gains Tax Act, 1975 , as exchanging for other shares.

(d) Shares in a company shall not be treated for the purposes of this section as being of the same class unless they would be so treated if dealt in on a stock exchange in the State.

(2) Subject to the subsequent provisions of this section, where, in the year 1986-87 or any subsequent year of assessment, an eligible employee in relation to a qualifying company subscribes for eligible shares in the qualifying company, he shall be entitled, in estimating the amount of his total income for the year of assessment in which the shares are issued, to have a deduction made of an amount equal to the amount of the subscription:

Provided that a deduction shall not be given to the extent to which the amount subscribed by an eligible employee for eligible shares issued to him in all years of assessment exceeds £750.

(3) Subsection (2) shall not apply as respects any amount subscribed for eligible shares if within the period of five years from the date of their acquisition—

(a) they are disposed of, or

(b) the eligible employee who made the subscription receives in respect of the shares any money or money's worth which does not constitute income in his hands for the purposes of income tax,

and there shall be made all such assessments, additional assessments or adjustments of assessments as are necessary to withdraw any relief from income tax already given under subsection (2) in respect of the amount subscribed:

Provided that where an event mentioned in paragraph (a) or (b) occurs after the fourth anniversary of the date on which the shares were issued to the eligible employee relief shall be withdrawn only to the extent of 75 per cent. of the amount which would otherwise be withdrawn.

(4) Except where the shares are in a company whose ordinary share capital, at the time of acquisition of the shares by the eligible employee, consists of shares of one class only the majority of the issued shares of the same class as the eligible shares must be shares other than—

(a) eligible shares, and

(b) shares held by persons who acquired their shares in pursuance of a right conferred on them or an opportunity afforded to them as a director or employee of the qualifying company or any of its 75 per cent. subsidiaries.

(5) In relation to shares in respect of which relief has been given under subsection (2) and not withdrawn, any question—

(a) as to which (if any) such shares issued to an eligible employee at different times a disposal relates, or

(b) whether a disposal relates to such shares or to other shares,

shall for the purposes of this section be determined as for the purposes of section 17 of the Finance Act, 1984 .

(6) Where there occurs in relation to any of the eligible shares of an eligible employee (hereinafter referred to as “the original holding”) a transaction which results in a new holding, as defined in paragraph 2 (1) (b) of Schedule 2 to the Capital Gains Tax Act, 1975 , being equated with the original holding for the purposes of capital gains tax, then for the purposes of subsection (3)—

(a) the new holding shall be treated as shares in respect of which relief under this section has been given,

(b) the transaction shall not be treated as involving a disposal of the original holding,

(c) the consideration for the disposal of the original holding to the extent that it consists of the new holding shall not be treated as money or money's worth, and

(d) a disposal of the whole or a part of the new holding shall be treated as a disposal of the whole or a corresponding part of the shares in respect of which relief has been given under this section.

(7) Any amount in respect of which relief is allowed under subsection (2) and not withdrawn shall be treated as a sum which, by reason of paragraph 4 of Schedule 1 to the Capital Gains Tax Act, 1975 , is to be excluded from the sums allowable under paragraph 3 of that Schedule.

(8) An eligible employee shall not be entitled to relief under subsection (2) in respect of any shares unless the shares are subscribed for and issued for bona fide commercial reasons and not as part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

(9) All such provisions of the Income Tax Acts as apply in relation to the deductions specified in sections 138 to 143 of the Income Tax Act, 1967 , shall, with any necessary modifications, apply in relation to relief under this section.