In J Charman v HMRC [2019] UKUT0253, the Upper Tribunal (UT) considered whether the grant of a share option amounted to a ‘right to acquire securities’. It also considered whether shares issued on a share for share exchange were acquired as an officer or employee of the original shares.

  • In November 2001 the taxpayer became an employee of a Bermudan company and was awarded share options, which were to be exercisable over three tranches in November 2002, 2003 and 2004.
  • The share purchase option agreement was appended to his employment contract.
  • In October 2002 he was awarded restricted shares in the Bermudan company, which were to be lifted in September 2005, being the earlier of three attached restrictions.
  • In March 2008 he exercised some of his share options and sold them realising approximately $53 million (a profit of $33 million).
  • In December 2012 as part of a public offering, shares in the company were exchanged for shares in another company. The original shares were cancelled.
  • HMRC disagreed with the taxpayer as to the terms of the options.. There were two relevant dates;  November 2001 when the share purchase option agreement appended to his employment contract and January 2003, when there was a stock option granted, which stated to be effective as of October 2001.

The FTT had determined that the taxpayer was UK Resident until 21 November 2003 and that the terms of the share options awards in three tranches made them taxable on the date of exercise and not grant. As the taxpayer had been non-resident at the time of exercise of the third option, this escaped UK tax.

HMRC appealed the FTT’s decision on the basis that the taxpayer acquired options when they were granted and so should be subject to tax in respect of all three options.

The taxpayer appealed against the FTT decision that the restricted shares had been acquired ‘as a director or employee’, as opposed to his capacity as a shareholder.

The UT determined:

  • Whether the FTT were correct to conclude that the taxpayer only acquired a securities option when each tranche of options become exercisable and not in October 2001.
  • Whether the taxpayer acquired shares in pursuance of a right conferred on, or opportunity offered to him by reason of his office or employment. If not as an officer or employee, how then were the shares acquired?

The UT found:

  • The taxpayer was granted options on 1 October 2001, which were exercisable on the terms and times set out by the agreement, one being the right to exercise subject to being an employee. He had acquired contractual rights in 2001 prior to the options becoming exercisable. Contractual rights created by the documents amounted to the creation of a ‘right to acquire securities’ at the date they were granted. HMRC's appeal was allowed and the options were taxable at the date of grant, when Mr Charman was UK resident meaning all three tranches were subject to UK tax.
  • The FTT correctly approached the point regarding office or employment; the taxpayer could not have acquired shares in the new company but for being or remaining an employee of the original company at the time he acquired them.


Employment Related Securities
This guide explains the tax consequences when a company gives shares to an employee or director and will assist you in designing share schemes.

ABC or alphabet shares: directors & employees
Giving shares to directors or employees

Statutory residence test toolkit
This is an interactive tool to determine 'At a glance' whether you are UK resident or not in a tax year.

External link

UT J Charman v HMRC [2020] UKUT 0253 (TCC)

FTT decision
FTT J Charman v HMRC [2018] TC06899