The clause deals with the application of the market value rule in case of exercise of option.
The Chartered Institute of Taxation has raised points about a matter of which the Paymaster General and the Revenue are aware. Therefore, I hope that simply mentioning it will elicit a response about the institute's concern that the provision will have unforeseen applications. We do not propose any amendments to the clause, but hope that clarification will be forthcoming from the Revenue. There is no need to detain the Committee further.
The clause reverses the effect of a recent Court of Appeal decision about the way in which capital gains and losses are worked out when certain options are exercised and assets are acquired or disposed of as a result. The effect of the court's decision was, on the one hand, to create a capital loss where there was no economic loss for some taxpayers who exercised options, mainly those who exercised unapproved employee share options, while, on the other hand, to create an additional tax bill in excess of the sum that those who granted the options, mainly employee benefit trusts, received for granting and satisfying the option. The clause restores the law to that generally thought to apply before the court's judgment and removes the unintended loss and the additional tax bill.
On the questions put by the Chartered Institute of Taxation, it said at the time that the
''Chancellor has made a wise decision in reversing an unexpected ruling by the Courts over tax relief on share options.''
I understand that the institute has subsequently asked for clarification from the Revenue. I am happy to put on the record that a detailed response will be forwarded to it. If the hon. Member for Eddisbury feels that the response would be helpful to him, I shall ensure that he also receives a copy.