Bonus shares

Tax liability of restricted shares given as bonuses

Two appeals  UBS AG v CRC and DB Group Services v CRC covering similar issues were heard recently in the Supreme Court. Both taxpayers were investment banks that had entered into arrangements to provide bonuses to employees. The aim was to avoid income tax and National Insurance on the payments.

In the first scheme a Jersey-registered company ESIP Ltd was incorporated from which UBS awarded restricted shares to its employees. The bank said these were restricted securities within ITEPA 2003 s 423 and therefore exempt from income tax under s 425(2). UBS did not control ESIP. DB had a similar arrangement with its offshore company Dark Blue Investments Ltd.

Conditions were attached to the shares making them subject to forfeiture if a contingency occurred so as to qualify for the exemption. In the UBS case ...