Mansworth v Jelley

by Tax Faculty Team on 13.02.2012 08:17

HMRC issuing letters to taxpayers


HMRC have advised us that they are sending letters to all taxpayers who have claimed Mansworth v Jelley losses inviting them to withdraw their claim and asking for a response within forty days. Those who are not prepared to withdraw the claim are asked to explain why they believe their claim is still valid.


The full text of the letter is as follows:


‘I am writing to provide you with an update on HMRC’s position in respect of taxpayers who have claimed capital losses on the disposal of shares acquired on the exercise of an employee share option before 10 April 2003.


HMRC issued Revenue & Customs Brief 30/09 “Shares acquired before 10 April 2003 by exercising employee share options – allowable deductions” which sets out HMRC’s current position in respect of such deductions. In addition, HMRC has issued Revenue & Customs Brief 60/09 “Questions arising from Revenue & Customs Brief 30/09”, which deals with frequently asked questions relating to Brief 30/09.


Revenue & Customs Brief 30/09 and 60/09 are available to view online.




HMRC had previously published guidance relating to the exercise of unapproved employee share options before 10 April 2003. As Revenue & Customs Brief 30/09 explains, HMRC considered that the gain or loss on the disposal of shares acquired by such options should be calculated by deducting from the disposal proceeds both of the following:


·         the market value of the shares at the time the option was exercised

·         any amount chargeable to income tax on the exercise of that option


However, HMRC has received legal advice that our guidance was incorrect. 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 augmented by any amount chargeable to income tax on the exercise of the option. Thus in computing any capital gain or loss accruing on a disposal of the shares no deduction falls to be made of, or in respect of, any amount that is chargeable to income tax on exercising the option.


A more detailed explanation of HMRC’s understanding of the law can be found in Revenue & Customs Brief 60/09 at question 13.


What to do now

HMRC now intends to finalise the enquiries in cases where Mansworth v Jelley losses have been claimed.

In the first instance HMRC invites you to withdraw your claim to losses in the period covered by the enquiry into your tax return or claim to losses. The enquiries will then be closed with an adjustment to the return, where appropriate, to remove the losses & make any other adjustments agreed.


If you are not prepared to withdraw your claim to losses, please explain why you consider it is not appropriate to withdraw your claim and the basis on which you believe your claim is valid. Please provide all documentary evidence on which you rely to support your claim.


Please let me have your response within 40 days of the date of this letter.


If you do not wish to withdraw your claim, HMRC will review your case on an individual basis and decide how best to take your case forward.’


The Tax Faculty published TAXGUIDE 1/10 Mansworth v Jelley revisited, in January 2010. This provides comprehensive guidance on the implications of HMRC’s change of view on the CGT treatment of shares acquired before 10 April 2003 by exercising employee share options.


Members will need to consider on a case by case basis whether their client is entitled to claim that legitimate expectation exists such that HMRC should be bound by its January 2003 Revenue Guidance, published on 8 January 2003.