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Phantom shares

NIGEL DORAN considers recent changes in the taxation of phantom share plans.

A RETROSPECTIVE TIGHTENING up of the definition of 'securities' for the purposes of ITEPA 2003 Part 7 (taxation of share-based remuneration) by bringing a number of options within that definition has been proposed in the Finance (No 2) Bill 2006. In response to representations on the ramifications of this change there has been an unexpected but welcome change in HMRC's approach to the taxation of phantom share plans including phantom share options. While this change will not have any great impact for employees who are permanently resident in the UK it is potentially of much greater significance for expatriate or internationally mobile employees.

In a typical phantom share plan or stock appreciation right an employee is awarded a number of notional shares in the employer company or its parent company. If the employee remains employed with the employer company or with a group company...

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