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Under ITEPA 2003, s 62 a share provided 'of' or 'from' the employment is subject to income tax as general earnings unless the employee has paid its full market value, see E4.502. When this rule is applied to restricted securities, a tax charge will normally arise on acquisition based on the market value taking account of restrictions.

However, this charge on acquisition may be removed if the securities:

1. Ìý

   •ÌýÌýÌýÌý are restricted securities (or a restricted interest in securities) at the time of their acquisition by virtue of the first type of restrictive provision¹ described at E4.507B (broadly speaking, where the shares will be forfeit if some condition is, or is not, satisfied), and

2. Ìý

   •ÌýÌýÌýÌý this restriction will be lifted within five years of acquisition

The effect is to exempt securities from liability on acquisition where there is a possibility that the securities will be forfeit within five years, whereupon the holder would not be entitled to their full market value. However, there will