Restricted share units were part of employee package

The taxpayer was a minority shareholder and employee in Wombat Financial Software Inc. In March 2008 after the company was acquired by NYSE he was granted 151 630 restricted stock units (RSUs). It was common ground that the RSUs were employment-related securities options (ITEPA 2003 s 420 and s 471).

The issue in dispute was whether any consideration given for the RSUs constituted a deductible amount (s 480(2)). The taxpayer claimed the units were granted in consideration for the sale of his shares which were valued at $10m so the deductible amount was $9m ie $10m less a $1m discount for uncertainty.

HMRC disagreed saying it was clear from the contractual arrangements that the RSUs were granted as part of an incentive scheme to encourage retention of employees. It was not therefore consideration within the meaning of s 421A. This provision excludes any consideration which...