HC Deb 14 July 1981 vol 8 cc1115-7

'(1) In paragraph 8 of Schedule 10 to the Finance Act 1980, there shall be added the following new sub-paragraph—

"(2)For the purposes of sub-paragraph (1) above a person shall be regarded as ceasing to hold the office of employment by virtue of which he is eligible to participate in the scheme where the company with which he holds the office or employment ceases to be a company of which the company concerned has control".

(2) The existing paragraph 8 shall be renumbered as subparagraph 8(1).'.—[Sir William Clark.]

Brought up, and read the First time.

Sir William Clark

I beg to move, That the clause be read a Second time.

This is a technical new clause, but before I try to argue it the Government should be congratulated on what they have done over the past two years for share option schemes. The share option schemes have been much improved since the Government came into office. However, there is an anomaly in the schemes, especially in relation to the savings-related share option schemes. The new clause allows an employee who has held a share option for three years to exercise it within six months of a share takeover, because if there is a share takeover the company ceases to be a member of the group, and under existing law it means that the relief lapses for the employee.

I do not need to remind the House that under the existing rules if a business is sold the employee who has held his option for three years—which is covered by the present rules—is given the right to exercise the option within six months of ceasing to be employed by the company. But there is an anomaly in that if the shares of the company are sold the employee may continue to be an employee of that company, but his option lapses because the company then loses its group relief. The new clause seeks to remove that anomaly by giving relief in this case.

I appreciate—and the Minister and the rest of the House will appreciate—that it is very technical, but I ask the Minister to give me an assurance that where there is a transfer of ownership of a company where share option schemes are in operation, whether by a sale of the company or by a sale of the shares, the employee holding the shares should not lose any relief. If the Minister can give me that assurance, I shall be most grateful.

Mr. Lawson

As my hon. Friend the Member for Croydon, South (Sir W. Clark) said, this is a technical point, but it is certainly a good one. Hitherto the Revenue has maintained that, due to the operation of paragraphs 12 and 21 of schedule 10 to the Finance Act 1980, a participant in a savings-related share option scheme of this kind who continued to work for the former subsidiary company after it had left the group or been taken over could not exercise his rights at all under paragraph 8 of schedule 10, even if he had held the rights for at least three years, on the basis that he had not ceased to hold employment.

However, the Inland Revenue has now taken legal advice on the matter. It is advised that the earlier interpretation was not correct and that the position which my hon. Friend is concerned to put right is already covered by the existing legislation. I am grateful to my hon. Friend for drawing my attention to the point. The Minister of State will be writing to him about it. It is clear that the new clause is unnecessary, as it is clear that the existing legislation covers the point.

Perhaps in this context I should mention that in view of the reference to "associated company" in paragraph 12 of schedule 10 it seems likely that a delay of one year may be imposed before the participant will be treated as ceasing to hold the office or employment by virtue of which he is eligible to participate in the scheme. If that is indeed so, it is something that we should consider and look at again, and that we shall certainly do.

Sir William Clark

I am pleased to hear that the Revenue has taken legal advice on the matter. Sometimes Back-Bench Members have to move amendments of a very technical nature in order to get clarification. I am delighted that my right hon. Friend has accepted the spirit of the amendment. In view of his explanation, I beg to ask leave to withdraw the clause.

Motion and clause, by leave, withdrawn.

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