Exercising Share Options and Relevant UK Earnings for Pension Tax Relief

SW17

Slightly niche question. When you exercise non tax-advantaged share options from a current or former UK employer, the difference between exercise price and value on day of exercise is subject to UK income tax and NI at the prevailing rate (any further gains, if you don't sell, being subject to CGT).

My question - is this gain amount on exercise which is subject to income tax considered "Relevant UK Earnings" to be eligible for getting tax relief on pension contributions? 

The nearest part of the HMRC definition of relevant earnings relating to pension tax relief is:

employment income such as pay, wages, bonus, overtime, commission (providing it is chargeable to tax under Section 7(2) ITEPA 2003)

This particular case is not specifically included or excluded, so I guess the question is whether it's included under this definition. It's taxed through payroll as PAYE (even after leaving a company, they effectively put you back on the books temporarily to run through payroll and remit you nett proceeds after tax) and is put on self assessment as an employment. 

My thinking is that logically it should be included as Relevant UK Earnings since it's treated as, and taxed as, regular pay/bonus income, but isn't explicitly covered.

Appreciate any insight, especially welcome if anyone can point to any official sources where this is covered.
 

More_complicated_than_that

The amount subject to income tax on the exercise of a share option is part of relevant UK earnings. 

If you want to follow along at home:

1. Start at s476(1) ITEPA 2003

2. Jump to s7(2)(c) and s7(6)(b) ITEPA 2003

3. Then look at the definition in s189(2)(a) FA 2004

4. And finish with s190(1) FA 2004 which is where "relevant UK earnings" is used. 

Marcon

SW17 said:

Slightly niche question. When you exercise non tax-advantaged share options from a current or former UK employer, the difference between exercise price and value on day of exercise is subject to UK income tax and NI at the prevailing rate (any further gains, if you don't sell, being subject to CGT).

My question - is this gain amount on exercise which is subject to income tax considered "Relevant UK Earnings" to be eligible for getting tax relief on pension contributions? 

The nearest part of the HMRC definition of relevant earnings relating to pension tax relief is:

employment income such as pay, wages, bonus, overtime, commission (providing it is chargeable to tax under Section 7(2) ITEPA 2003)

This particular case is not specifically included or excluded, so I guess the question is whether it's included under this definition. It's taxed through payroll as PAYE (even after leaving a company, they effectively put you back on the books temporarily to run through payroll and remit you nett proceeds after tax) and is put on self assessment as an employment. 

My thinking is that logically it should be included as Relevant UK Earnings since it's treated as, and taxed as, regular pay/bonus income, but isn't explicitly covered.

Appreciate any insight, especially welcome if anyone can point to any official sources where this is covered.
 

Maybe try asking the question here: https://community.hmrc.gov.uk/customerforums/

Seems to be very much quicker than trying to get a response out of HMRC any other way!

Edit - previous answer was posted while I was typing this so you might already have all the info you need.

SW17

Many thanks both, and particular thanks to @More_complicated_than_that for the detailed explanation and legislation references. Your references in points #1 and 2 of your reply were the missing pieces in the jigsaw for me. Much appreciated.