Share Options – ‘Mansworth v Jelley’ update
In an unusual move, HMRC have changed their guidance concerning allowable deductions for the disposal of certain shares. The change in guidance applies to shares acquired pre – 10 April 2003 by exercising employee share options.
HMRC have received legal advice that the previously published guidance issued following the 2002 Court of Appeal decision in Mansworth v Jelley  was incorrect.
This old guidance considered the gain or loss on disposal should be calculated on the disposal of shares acquired by such options by deducting from the disposal proceeds both:
- the market value of the shares at the time the option was exercised and
- any amount chargeable to income tax on the exercise
Following legal advice, HMRC now accept that where the shares are treated as having been acquired at market value, that value is the full measure of their deemed cost of acquisition. The cost is not to be increased by any amount chargeable to income tax on the exercise of the option i.e. the second of the two rules above is no longer valid.
The change is not expected to affect most taxpayers who have acquired and sold shares by exercising employee share options. Taxpayers such as those who acquired shares and exercised an option early may be affected.
Taxpayers affected by the change may need to amend self assessment returns or loss claims provided they are in time to do so. HMRC have not provided any further guidance to taxpayers at this time.