Upper Tribunal Tax and Chancery Chamber

UT (Tax & Chancery) UT-2024-000088 - [2025] UKUT 00374 (TCC)

Fecha: 15-Oct-2025

What is the taxable receipt

What is the taxable receipt

19.

There is an obvious distinction between (a) an employee’s remuneration, and (b) the value which the employee subsequently acquires through the economic exploitation of that remuneration. The former would naturally be taxed as employment income, the latter not (although it may be subject to some other form of taxation, e.g. capital taxes or taxes on non-employment income).

20.

That distinction can be justified on two, essentially complementary, bases:

(1)

The employee has already been taxed on the remuneration, and there would be “double taxation” if they were to be taxed again qua employee on the economic benefit derived from that income.

(2)

Any profitable use made from that income is the product of the employee’s own decision-making, which carries with it the risk of loss which is the employee’s alone.

21.

As a matter of first impression, and without regard to any specific legislative interventions and any tax avoidance arrangements, if an employee was remunerated by his employer transferring shares in a company to him on an unrestricted basis, the value of that receipt would be regarded as employment income. Any appreciation in those shares subsequently, or dividends paid to shareholders in future years, would not be so regarded (any more than a fall in value of shares after transfer would be regarded as diminishing the amount of remuneration received). Indeed, the value of the shares when acquired will reflect contemporaneous market perception of the likelihood of future dividends.

22.

Once we move beyond that simple example, matters soon become more complex. If the employer gives the employees not shares, but an option to acquire shares at a favourable price, is it the option which represents the remuneration, by reference to its market value at the date of grant, or the profit made if and when the option is exercised: see Abbott v Philbin on which the House of Lords split 3:2. We observe that:

(1)

if the option was granted at a time when market views about the company’s prospects are bullish, the employee may realise a profit through selling the option, even if because of market events it later turned out that the option never became exercisable; but

(2)

in a bearish market, where the market value of the option at the time of grant meant that the employee could not realise a profit by selling the option, it may nevertheless prove to be valuable in the future, and be exercised.

23.

Matters become more difficult still when moving beyond (a) options to acquire shares at a particular strike price (a widely known asset class, which in many iterations is traded in enormous volumes on the world’s financial markets) to (b) other forms of contingent right. To take an extreme example of the latter, what of an employee whose salary is payable in arrears, and who can “factor” that contingent right so as to raise money in advance? Is the taxable receipt then the market value of the accrued right to salary, rather than the money eventually paid by the employer? If that were the position, it would mark a fundamental change to the taxation of employment income.

24.

This was a point made by the FTT at Decision [51] when they observed of Abbott v Philbin:

“We do not read that decision as meaning that any deferred payment rights granted or held by employees should be treated as separate from any subsequent payment such that they are taxable on grant or award.”

25.

Against the background of those general observations, we accept of course that the question we must answer is whether the specific contingent rights received by Mr Saunders on receipt of the vested SARs were taxable remuneration.