Restricted securities and convertible securities

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Restricted securities and convertible securities can each be used as a form of employee share incentive and each type of share is subject to its own tax regime (under sections 422–432 and 435–444 of Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) respectively). However the definitions which apply to these two types of security are wide; and in some circumstances, it can even be difficult to distinguish between the two of them or to establish whether the relevant shares fall outside of both tax regimes.

Restricted securities

In summary, restricted securities are employment-related securities which, from the time that they are acquired, are subject to identifiable restrictions which reduce their value. Most commonly, the restrictions will relate to the ability of the employee shareholder to keep the shares (for example, by imposing an obligation that they must forfeit the shares if they leave employment) or their ability to sell them (for example, by the directors having the power to refuse to permit a transfer of the shares). For a definition

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