(1) For the relevant tax purposes the market value of the shares (or interest in shares) at the time of the acquisition is to be calculated disregarding the effect on that market value of the intellectual property agreement and any transfer of intellectual property pursuant to it.
(2) For the purposes of subsection (1) “the relevant tax purposes” are—
(a) determining any amount that is to constitute earnings from the employment under Chapter 1 of Part 3 (earnings),
(b) determining the amount of any gain realised on the occurrence of an event that is a chargeable event by virtue of section 439(3)(a) (conversion),
(c) operating Chapter 3C of this Part (acquisition of securities for less than market value), ...
(d) determining any amount that counts as employment income of the employee under Chapter 5 of this Part (securities acquired pursuant to securities option), and
(e) determining any amount that counts as employment income of the employee in respect of the employment under Chapter 2 of Part 7A (employment income provided through third parties)
(1) If the shares are (or interest in shares is) acquired before the intellectual property agreement is made, or before any transfer of intellectual property pursuant to it, and any benefit deriving from the intellectual property agreement or any such transfer is received by the employee in connection with the shares (or interest in shares), the taxable amount determined under section 448 (post-acquisition benefits from securities: amount of charge) is to be treated as nil.
(2) But this section does not apply if something which affects the shares (or interest in shares) has been done (at or before the time when the intellectual property agreement is made or intellectual property is transferred) as part of a scheme or arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions.
454 Deemed election for disapplication of Chapter 2
(1) If the shares are restricted securities (or the interest in shares is a restricted interest in securities), the employer and the employee are to be treated as making an election under section 431(1) (election for disapplication of Chapter 2) in relation to the shares (or interest in shares).
(2) But the employer and the employee may agree that subsection (1) is not to apply in relation to the shares (or interest in shares).
(3) An agreement under subsection (2) is irrevocable and—
(a) must be made in a form approved by the Board of the Inland Revenue, and
(b) may not be made more than 14 days after the acquisition.
(4) If the employer and the employee make an agreement under subsection (2) in relation to the shares (or interest in shares), subsection (5) applies for the purposes of determining the taxable amount for the purposes of section 426 (charge on occurrence of chargeable event) on the occurrence on any chargeable event in relation to the shares (or interest in shares).
(5) In determining under section 428(3) (amount of charge) what would have been the market value of the shares (or interest in shares) at the time of the acquisition but for any restrictions (IUMV), that market value is to be calculated disregarding the effect on that market value of the intellectual property agreement and any transfer of intellectual property pursuant to it.
For the purposes of Chapter 3B (securities with artificially enhanced market value) neither the intellectual property agreement nor any transfer of intellectual property pursuant to it are things done otherwise than for genuine commercial purposes.
456 Meaning of “intellectual property” and “transfer”
(1) In this Chapter “intellectual property” means—
(a) any patent, trade mark, registered design, copyright or design right, plant breeders' rights or rights under section 7 of the Plant Varieties Act 1997,
(b) any right under the law of a country or territory outside the United Kingdom corresponding to, or similar to, a right within paragraph (a),
(c) any information or technique not protected by a right within paragraph (a) or (b) but having industrial, commercial or other economic value,
(d) any licence or other right in respect of anything within paragraph (a), (b) or (c), or
(e) any goodwill (having the meaning that it has for accounting purposes) associated with anything within paragraphs (a) to (d).
(2) The Treasury may by order amend the definition of “intellectual property” in subsection (1).
(3) For the purposes of this Chapter a transfer of intellectual property includes—
(a) a sale of the intellectual property,
(b) the grant of a licence or other right in respect of it, and
(c) the assignment of a licence or other right in respect of it.
(1) In this Chapter “research institution” means—
(a) any university or other institution receiving a grant (including a recurrent grant towards its costs), loan, financial support, financial assistance, financial resources or payment under—
(i) section 65 of the Further and Higher Education Act 1992,
(ii) regulations made under section 485 of the Education Act 1996,
(iii) section 92, 97, 103 or 104(1)(a) of the Tertiary Education and Research (Wales) Act 2022, ignoring for this purpose any grant, loan, financial support, financial assistance, financial resources or payment received as a collaborating body within the meaning given by section 92(5), 97(3) or 104(2) of that Act, as the case may be,
(iv) section 14 of the Education Act 2002,
(v) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(vi) section 100 of the Apprenticeships, Skills, Children and Learning Act 2009, or
(vii) section 39 or 97 of the Higher Education and Research Act 2017,
(aa) any institution maintained by a local authority in England or Wales in the exercise of their further and higher education functions,
(ab) any institution within the higher education sector for the purposes of the Further and Higher Education (Scotland) Act 1992,
(ac) any college of further education within the meaning of section 36(1) of the Further and Higher Education (Scotland) Act 1992,
(ad) any central institution within the meaning of section 135(1) of the Education (Scotland) Act 1980,
(ae) the Queen’s University of Belfast or the University of Ulster,
(af) a college of education in Northern Ireland within the meaning of Article 2(2) of the Education and Libraries (Northern Ireland) Order 1986 (S.I. 1986/594 (N.I. 3)), or
(ag) any institution providing in Northern Ireland further education as defined in Article 3 of the Further Education (Northern Ireland) Order 1997 (S.I. 1997/1772 (N.I. 15)), or
(b) any institution that carries out research activities otherwise than for profit and that is neither controlled nor wholly or mainly funded by a person who carries on activities for profit.
(2) The Treasury may by order amend subsection (1) to include in or exclude from the definition of “research institution” a person specified in the order or persons of a description specified in the order.
For the purposes of this Chapter a person is involved in research in relation to any intellectual property transferred or to be transferred from one or more research institutions if—
(a) he has been actively engaged for the research institution (or any of them) in connection with research (whether as an employee or otherwise), and
(b) that research is relevant to anything to which the intellectual property relates.
459 Transfer of intellectual property by controlled company
(1) For the purposes of this Chapter where a research institution has control of a company, a transfer of intellectual property from the company is to be treated as a transfer from the research institution.
(2) For the purposes of this Chapter where two or more research institutions together have control of a company, a transfer of intellectual property from the company is to be treated as a transfer from those research institutions.
(3) In this section “control” means control within the meaning given by sections 450 and 451 of CTA 2010.
(1) In this Chapter—
“interest”, in relation to shares, and
“shares”,
have the meaning indicated in section 420.
(2) In this Chapter “market value” has the meaning indicated in section 421(1).
(3) In this Chapter—
“the acquisition”,
“the employee”, and
“the employer”,
have the meaning indicated in section 421B(8).
(4) In this Chapter—
“restricted interest in securities”, and
“restricted securities”,
have the meaning indicated in sections 423 and 424.
(1) This Chapter applies to a securities option acquired by a person where the right or opportunity to acquire the securities option is available by reason of an employment of that person or any other person.
(2) For the purposes of subsection (1) “employment” includes a former or prospective employment.
(3) A right or opportunity to acquire a securities option made available by a person’s employer, or a person connected with a person’s employer, is to be regarded for the purposes of subsection (1) as available by reason of an employment of that person unless—
(a) the person by whom the right or opportunity is made available is an individual, and
(b) the right or opportunity is made available in the normal course of the domestic, family or personal relationships of that person.
(4) A right or opportunity to acquire a securities option available by reason of holding employment-related securities is to be regarded for the purposes of subsection (1) as available by reason of the same employment as that by reason of which the right or opportunity to acquire the employment-related securities was available.
(5) In this Chapter—
“the acquisition”, in relation to an employment-related securities option, means the acquisition of the employment-related securities option pursuant to the right or opportunity available by reason of the employment,
“the employment” means the employment by reason of which the right or opportunity to acquire the employment-related securities option is available (“the employee” and “the employer” being construed accordingly), and
“employment-related securities option” means a securities option to which this Chapter applies.
(1) For the purposes of this Chapter the following are “associated persons” in relation to an employment-related securities option—
(a) the person who acquired the employment-related securities option on the acquisition,
(b) (if different) the employee, and
(c) any relevant linked person.
(2) A person is a relevant linked person if—
(a) that person (on the one hand), and
(b) either the person who acquired the employment-related securities option on the acquisition or the employee (on the other),
are or have been connected or (without being or having been connected) are or have been members of the same household.
(3) But a company which would otherwise be a relevant linked person is not if it is—
(a) the employer,
(b) the person from whom the employment-related securities option was acquired, or
(c) the person by whom the right or opportunity to acquire the employment-related securities option was made available.
473 Introduction to taxation of securities options
(1) The starting-point is that section 475 contains an exemption from the liability to tax that might otherwise arise under—
(a) Chapter 1 of Part 3 (earnings), or
(b) Chapter 10 of that Part (taxable benefits: residual liability to charge),
when an employment-related securities option is acquired.
(2) Liability to tax may arise, when securities are acquired pursuant to the employment-related securities option, under—
(a) section 446B (charge on acquisition where market value of securities or interest artificially depressed),
(b) Chapter 3C of this Part (acquisition of securities for less than market value), or
(c) section 476 (acquisition of securities pursuant to securities option).
(3) Liability to tax may also arise by virtue of section 476 when—
(a) the employment-related securities option is assigned or released, or
(b) a benefit is received in connection with the employment-related securities option.
(4) There are special rules relating to share options acquired under—
(a) Schedule 3 SAYE option schemes (see Chapter 7 of this Part),
(b) Schedule 4 CSOP schemes (see Chapter 8 of this Part), or
(c) enterprise management incentives (see Chapter 9 of this Part).
(1) No liability to income tax arises in respect of the acquisition of an employment-related securities option.
(2) Subsection (1) is subject to section 526 (... CSOP schemes: charge where share option granted at a discount).
(1) If a chargeable event occurs in relation to an employment-related securities option, the taxable amount counts as employment income of the employee for the relevant tax year.
(2) For this purpose—
(a) “chargeable event” has the meaning given by section 477,
(b) “the taxable amount”is the amount determined under section 478, and
(c) “the relevant tax year”is the tax year in which the chargeable event occurs.
(3) Relief under section 481 or 482 (relief for secondary Class 1 contributions or special contribution met by employee) may be available against an amount counting as employment income under this section.
(5) If the employee has been divested of the employment-related securities option by operation of law—
(a) income tax is charged on the amount determined under section 478, and
(b) the person liable for any tax so charged is the relevant person in relation to the chargeable event (see section 477(7)).
(5A) An amount charged under subsection (5)(a) is treated for income tax purposes as an amount of income.
(6) This section is subject to—
section 519 (... SAYE option schemes: no charge in respect of exercise of share option by employee),
section 524 (... CSOP schemes: no charge in respect of exercise of share option by employee), and
section 530 (enterprise management incentives: no charge on exercise by employee of option to acquire shares at market value).
(1) This section applies for the purposes of section 476 (charge on occurrence of chargeable event).
(2) Any of the events mentioned in subsection (3) is a “chargeable event” in relation to the employment-related securities option unless it occurs on or after the death of the employee.
(3) The events are—
(a) the acquisition of securities pursuant to the employment-related securities option by an associated person,
(b) the assignment for consideration of the employment-related securities option by an associated person otherwise than to another associated person or the release for consideration of the employment-related securities option by an associated person, or
(c) the receipt by an associated person of a benefit in connection with the employment-related securities option (other than one within paragraph (a) or (b)).
(4) For the purposes of subsection (3)(a) securities are acquired at the time when a beneficial interest is acquired (and not, if different, the time when the securities are conveyed or transferred).
(5) A benefit received on account of any disability (within the meaning of the Equality Act 2010 in England and Wales and Scotland, or the Disability Discrimination Act 1995) of the employee is to be disregarded for the purposes of subsection (3)(c).
(6) A benefit in money or money’s worth received in consideration for or otherwise in connection with—
(a) failing or undertaking not to acquire securities pursuant to the employment-related securities option, or
(b) granting or undertaking to grant to another person a right to acquire securities which are subject to the employment-related securities option or any interest in them,
is to be regarded for the purposes of subsection (3)(c) as received in connection with the employment-related securities option.
(7) For the purposes of section 476(5) (charge to income tax) the relevant person in relation to a chargeable event is—
(a) in the case of an event that is a chargeable event by virtue of subsection (3)(a), the person by whom the securities are acquired, and
(b) in the case of an event that is a chargeable event by virtue of subsection (3)(b) or (c), the person by whom the consideration or benefit is received.
(1) The taxable amount for the purposes of section 476 (charge on occurrence of chargeable event) is—
AG-DA
where—
AG is the amount of any gain realised on the occurrence of the chargeable event, and
DA is the total of any deductible amounts.
(2) Section 479 explains what is the amount of any gain realised on the occurrence of a chargeable event.
(3) Section 480 specifies what are deductible amounts.
479 Amount of gain realised on occurrence of chargeable event
(1) This section applies for the purposes of section 478 (amount of charge on occurrence of chargeable event).
(2) The amount of the gain realised on the occurrence of an event that is a chargeable event by virtue of section 477(3)(a) (acquisition of securities) is (subject to subsection (4))—
MV-C
(3) In subsection (2)—
MV is the market value of the securities that are acquired at the time when they are acquired, and
C is the amount of any consideration given for the securities that are acquired.
(3A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) But the amount of the gain realised on the occurrence of an event that is a chargeable event by virtue of section 477(3)(a) (acquisition of securities) is calculated—
(a) if section 531 (enterprise management incentives: limitation of charge on exercise of option to acquire shares below market value) applies, in accordance with that section, and
(b) if section 532 (enterprise management incentives: modified tax consequences following disqualifying events) applies, in accordance with that section.
(5) The amount of the gain realised on the occurrence of an event that is a chargeable event by virtue of section 477(3)(b) (assignment or release of option) is the amount of the consideration given for the assignment or release.
(6) The amount of the gain realised on the occurrence of an event that is a chargeable event by virtue of section 477(3)(c) (receipt of benefit in connection with option) is the amount or market value of the benefit.
(7) But if—
(a) the consideration mentioned in subsection (5), or
(b) the benefit mentioned in subsection (6),
consists (in whole or in part) in the provision of securities or an interest in securities the market value of which has been reduced by at least 10% as a result of things done otherwise than for genuine commercial purposes within the period of 7 years ending with the receipt of the consideration or benefit, its market value is to be taken to be what it would be but for the reduction.
(8) The following are among the things that are, for the purposes of subsection (7), done otherwise than for genuine commercial purposes—
(a) anything done as part of a scheme or arrangement the main purpose, or one of the main purposes, of which is the avoidance of tax or national insurance contributions, and
(b) any transaction between companies which are members of the same group on terms which are not such as might be expected to be agreed between persons acting at arm’s length (other than a payment for group relief).
(9) In subsection (8)(b)—
(a) “group” means a company and its 51% subsidiaries, and
(b) “group relief” has the same meaning as in section 183(1) of CTA 2010.
(1) This section applies for the purposes of section 478 (amount of charge on occurrence of chargeable event).
(2) The amount of—
(a) any consideration given for the acquisition of the employment-related securities option, and
(b) the amount of any expenses incurred in connection with the acquisition of securities, assignment, release or receipt which constitutes the chargeable event,
is a deductible amount.
(3) Where in consequence of—
(a) the acquisition of the employment-related securities option,
(b) the acquisition of securities pursuant to the employment-related securities option, or
(c) a transaction of which the acquisition of the employment-related securities option or the acquisition of securities pursuant to the employment-related securities option forms part,
there is a reduction in the market value of any employment-related securities to which an associated person is beneficially entitled, the amount of the reduction is to be treated for the purposes of subsection (2) as consideration (or additional consideration) given for the acquisition of the employment-related securities option.
(4) If an amount counts as employment income of the employee under section 526 (... CSOP schemes: charge where option granted at a discount) in respect of the employment-related securities option, so much of that amount as is attributable to the shares in question is a deductible amount.
(5) The following are also deductible amounts—
(a) any amount that constituted earnings from the employment under Chapter 1 of Part 3 (earnings) in respect of the acquisition of the employment-related securities option (other than an amount of exempt income),
(b) any amount that was treated as earnings from the employment under Chapter 10 of that Part (taxable benefits: residual liability to charge) in respect of the acquisition of the employment-related securities option, ...
(c) the amount of any gain by a previous holder on an assignment of the employment-related securities option which would have been a deductible cost by virtue of subsection (2)(c) of section 479 (as originally enacted) on an exercise of the option at a time when that section was in force, and
(d) any amount that has counted as employment income of the employee in respect of the employment under Chapter 2 of Part 7A in relation to the employment-related securities option or to any sum of money or asset held solely for the purposes of the option.
(5A) In subsection (5)(a) the reference to an amount of exempt income, in a case in which the amount that constituted earnings in respect of the acquisition was not an amount of general earnings to which any of the charging provisions of Chapters 4 and 5 of Part 2 applied, includes any amount that would have been an amount of exempt income if any of those charging provisions had applied.
(6) If there has been a previous chargeable event in relation to the employment-related securities option (or if section 476 or 477 as originally enacted applied to the option by virtue of an earlier event), so much of any deductible amount as was deducted in calculating the taxable amount on the occasion of that event is to be regarded as not being a deductible amount.
(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
481 Relief for secondary Class 1 contributions met by employee
(1) Relief is available under this section against an amount counting as employment income under section 476 if —
(a) an agreement having effect under paragraph 3A of Schedule 1 to the Contributions and Benefits Act has been entered into allowing the secondary contributor to recover from the employee the whole or part of any secondary Class 1 contributions in respect of the gain, or
(b) an election having effect under paragraph 3B of Schedule 1 to that Act is in force which has the effect of transferring to the employee the whole or part of the liability to pay secondary Class 1 contributions in respect of the gain.
(2) The amount of the relief is the total of —
(a) any amount that under the agreement referred to in subsection (1)(a) is recovered in respect of the gain by the secondary contributor before 5th June in the tax year following that in which the gain is realised, and
(b) the amount of any liability in respect of the gain that, by virtue of the election referred to in subsection (1)(b), has become the employee’s liability.
(3) If notice of withdrawal of approval of the election is given, the amount of any liability in respect of the gain for the purposes of subsection (2)(b) is limited to the amount of the liability met before 5th June in the tax year following that in which the gain is realised.
(4) Subsection (1) does not apply in respect of a liability to pay Class 1 contributions which is prevented from arising by virtue of section 2(1)(a) of the Social Security Contributions (Share Options) Act 2001 (liability to pay Class 1 contributions in respect of gains replaced by liability to pay special contribution).
(4A) Relief under this section is given by way of deduction from the amount otherwise counting as employment income.
(4B) Relief under this section does not affect the amount to be taken into account—
(a) as employment income in determining contributions payable under the Contributions and Benefits Act, or
(b) as relevant employment income for the purposes of paragraph 3A or 3B of Schedule 1 to that Act.
(5) In this section—
“approval”, in relation to an election, means approval by the Commissioners for Her Majesty’s Revenue and Customs under paragraph 3B of Schedule 1 to the Contributions and Benefits Act, and
“secondary contributor” has the same meaning as in that Act (see section 7).
482 Relief for special contribution met by employee
(1) Relief is available under this section against an amount counting as employment income under section 476 if conditions A to D are met.
(2) Condition A is that a notice in respect the employment-related securities option was given to the Commissioners for Her Majesty’s Revenue and Customs in accordance with section 1 of the Social Security Contributions (Share Options) Act 2001 before 11th August 2001.
(3) Condition B is that the person, or one of the persons, who gave that notice is a person who (apart from that Act) was liable, or would have become liable, by virtue of an election under paragraph 3B of Schedule 1 to the Contributions and Benefits Act, to pay secondary Class 1 contributions in respect of an event which is a chargeable event for the purposes of section 476.
(4) Condition C is that that person became liable to pay a special contribution under section 2 of the Social Security Contributions (Share Options) Act 2001 in respect of the employment-related securities option.
(5) Condition D is that that person met that liability before 11th August 2001 or before the end of such further period as the Commissioners for Her Majesty’s Revenue and Customs directed under section 2(5) of that Act.
(6) The amount of the relief is the amount of the liability referred to in subsection (4).
(7) Relief under this section is given by way of deduction from the amount otherwise counting as employment income.
483 Application of this Chapter where option exchanged for another
(1) This section applies if—
(a) the employment-related securities option (the “old option”) is assigned or released, and
(b) the whole or part of the consideration for the assignment or release consists of or includes another securities option (the “new option”).
(2) For the purposes of section 479(5) (amount of gain realised by assigning or releasing option) the new option is not to be treated as consideration given for the assignment or release of the old option.
(3) This Chapter applies to the new option as it applies to the old option.
(4) For the purposes of section 480(2) (consideration for acquisition of option) the amount of the consideration given for the acquisition of the new option is to be treated as being the sum of—
(a) the amount by which the amount of the consideration given for the acquisition of the old option exceeds the amount of any consideration given for the assignment or release of the old option, apart from the new option, and
(b) any valuable consideration given for the acquisition of the new option, apart from the old option.
(5) Two or more transactions are to be treated for the purposes of subsection (1) as a single transaction by which one option is assigned for a consideration which consists of or includes another option if—
(a) the transactions result in—
(i) a person ceasing to hold an option, and
(ii) that person or a connected person coming to hold another option, and
(b) one or more of the transactions is effected under arrangements to which two or more persons holding options, in respect of which there may be liability to tax under this Chapter, are parties.
(6) Subsection (5) applies regardless of the order in which the assignments and the acquisition occur.
(1) In this Chapter—
“securities”, and
“securities option”,
have the meaning indicated in section 420.
(2) In this Chapter “market value” has the meaning indicated in section 421(1).
(3) For the purposes of this Chapter sections 421(2) and 421A apply for determining the amount of consideration given for anything.
(4) In this Chapter “employment-related securities” has the same meaning as in Chapter 1 of this Part (see section 421B(8)).
(5) In this Chapter—
“the acquisition”,
“the employee”,
“the employer”,
“the employment”, and
“employment-related securities option”,
have the meaning indicated in section 471(5).
(6) In this Chapter “associated person” has the meaning indicated in section 472.
(7) In this Chapter—
“secondary Class 1 contributions” has the same meaning as in the Contributions and Benefits Act (see section 1 of that Act), ...
...
(1) This Chapter provides—
(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) for exemptions from income tax in connection with shares obtained under share incentive plans (“SIPs”) which are Schedule 2 SIPs,
(c) for amounts to count as employment income in certain circumstances in connection with such plans, and
(d) for the making of PAYE deductions in connection with such amounts.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) The provisions of—
(a) this and the following sections of this Chapter,
(b) Schedule 2, and
(c) the provisions mentioned in section 515 (tax advantages and charges under other Acts),
together constitute “the SIP code”.
(4) In the SIP code—
...
“PAYE deduction” means a deduction required by PAYE regulations;
“Schedule 2 SIP” is to be read in accordance with paragraph 1 and Part 10 of Schedule 2;
a “share incentive plan” (or “SIP” for short) means a plan established by a company providing—
for shares to be appropriated to employees without payment (“free shares”), or
for shares to be acquired on behalf of employees out of sums deducted from their salary (“partnership shares”).
(5) Other expressions used in the SIP code and contained in the index at the end of Schedule 2 have the meaning indicated by the index.
489 Operation of tax advantages in connection with Schedule 2 SIP
(1) Sections 490 to 499 apply for income tax purposes in connection with shares awarded under a Schedule 2 SIP.
(2) But those sections do not apply to an individual if, at the time of the award of shares in question, the earnings from the eligible employment are not (or would not be if there were any) general earnings to which any of the charging provisions of Chapter 4 or 5 of Part 2 apply.
(3) “The eligible employment” means the employment which results in the individual meeting the employment requirement in relation to the plan.
(4) And those sections do not apply if the main purpose (or one of the main purposes) of the arrangements under which the shares in question are awarded or acquired is the avoidance of tax or national insurance contributions.
490 No charge on award or acquisition of shares: general
(1) This section applies—
(a) on the award to an employee of free, matching or partnership shares under the plan, or
(b) on the acquisition on behalf of an employee of dividend shares under the plan.
(2) The employee is not liable to income tax on the value of the beneficial interest in the shares that passes to the employee at the time of the award or acquisition.
492 No charge on partnership share money deducted from salary
(1) An employee is not liable to income tax under Part 2 on any amount of the employee’s salary which is deducted as partnership share money under a partnership share agreement.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
496 No charge on cash dividend retained for reinvestment
For the exemption from income tax of amounts retained under paragraph 68(2) of Schedule 2 (amount of cash dividend not reinvested), see section 770 of ITTOIA 2005 (amounts applied by SIP trustees acquiring dividend shares or retained for reinvestment).
497 Limitations on charges on shares ceasing to be subject to plan
(1) No liability to income tax arises on free or matching shares ceasing to be subject to the plan, except as provided by—
(a) section 505 (charge on free or matching shares ceasing to be subject to plan), or
(b) section 507 (charge on disposal of beneficial interest during holding period).
(2) No liability to income tax arises on partnership shares ceasing to be subject to the plan, except as provided by section 506 (charge on partnership shares ceasing to be subject to plan).
(3) No liability to income tax arises on dividend shares ceasing to be subject to the plan, except under Chapter 3 or 4 of Part 4 of ITTOIA 2005 (dividends etc. from UK or non-UK resident companies etc.) as a result of section 394(2) or 407(2) of that Act (distribution or dividend payment when dividend shares cease to be subject to plan).
498 No charge on shares ceasing to be subject to plan in certain circumstances
(1) A participant is not liable to income tax on shares ceasing to be subject to the plan if—
(a) they cease to be so subject on the participant ceasing to be in relevant employment, and
(b) subsection (2) applies.
(2) This subsection applies if the participant ceases to be in relevant employment—
(a) because of injury or disability,
(b) on being dismissed by reason of redundancy,
(c) by reason of a relevant transfer within the meaning of the Transfer of Undertakings (Protection of Employment) Regulations 2006,
(d) if the relevant employment is employment by an associated company (see paragraph 95(2) of Schedule 2), by reason of a change of control or other circumstances ending that company’s status as an associated company,
(e) by reason of the participant’s retirement ..., or
(f) on the participant’s death.
(3) A participant is not liable to income tax on shares (“the relevant shares”) in a company (“the relevant company”) being withdrawn from the plan if—
(a) the withdrawal of the relevant shares from the plan relates to—
(i) a transaction resulting from a compromise, arrangement or scheme falling within subsection (9),
(ii) an offer forming part of a general offer falling within subsection (10), or
(iii) the application of sections 979 to 982 or 983 to 985 of the Companies Act 2006 in the case of a takeover offer (as defined in section 974 of that Act) falling within subsection (13), and
(b) as a result of, as the case may be—
(i) the transaction,
(ii) the offer, or
(iii) the application of sections 979 to 982 or 983 to 985 of the Companies Act 2006,
the participant receives cash (and no other assets) in exchange for the relevant shares.
(4) For the purposes of subsection (3)(b) it does not matter if the participant receives other assets in exchange for shares other than the relevant shares.
(5) Subsection (3) does not apply to the relevant shares (or to a proportion of them) if in connection with, as the case may be—
(a) the compromise, arrangement or scheme,
(b) the general offer, or
(c) the takeover offer,
a course of action was open to the participant which, had it been followed, would have resulted in other assets being received in exchange for the relevant shares (or the proportion of them) instead of cash.
(6) Subsection (3) does not apply to the relevant shares (or to a proportion of them) if it is reasonable to suppose that the relevant shares (or the proportion of them) would not have been awarded to the participant—
(a) had, as the case may be—
(i) the compromise, arrangement or scheme,
(ii) the general offer, or
(iii) the takeover offer,
not been made, or
(b) had any arrangements for the making of—
(i) a compromise, arrangement or scheme which would fall within subsection (9),
(ii) a general offer which would fall within subsection (10), or
(iii) a takeover offer (as defined in section 974 of the Companies Act 2006) which would fall within subsection (13),
which were in place or under consideration at any time not been in place or under consideration.
(7) In subsection (6) the reference to shares being awarded to the participant is to be read, in the case of dividend shares, as a reference to the shares being acquired by the trustees on the participant's behalf.
(8) In subsection (6)(b) “arrangements” includes any plan, scheme, agreement or understanding, whether or not legally enforceable.
(9) A compromise, arrangement or scheme falls within this subsection if it is applicable to or affects—
(a) all the ordinary share capital of the relevant company or all the shares of the same class as the relevant shares, or
(b) all the shares, or all the shares of that same class, which are held by a class of shareholders identified otherwise than by reference to their employment or their participation in a Schedule 2 SIP.
(10) A general offer falls within this subsection if—
(a) it is made to holders of shares of the same class as the relevant shares or to holders of shares in the relevant company, and
(b) it is made in the first instance on a condition such that if it is satisfied the person making the offer will have control of the relevant company.
(11) For the purposes of subsection (10) it does not matter if the general offer is made to different shareholders by different means.
(12) In subsection (10)(b) “control” has the meaning given by sections 450 and 451 of CTA 2010.
(13) A takeover offer falls within this subsection if—
(a) it relates to the relevant company, and
(b) where there is more than one class of share in the relevant company, the class or classes to which it relates is or include the class of the relevant shares.
499 No charge in respect of incidental expenditure
An employee is not liable to income tax in respect of incidental expenditure of—
(a) the trustees,
(b) the company which established the plan, or
(c) (if different) the employer,
in operating the plan.
500 Operation of tax charges in connection with Schedule 2 SIP
(1) Sections 501 to 508 apply for income tax purposes in connection with shares awarded under a Schedule 2 SIP.
(2) But those sections do not apply to an individual if, at the time of the award of shares in question, the earnings from the eligible employment are not (or would not be if there were any) general earnings to which any of the charging provisions of Chapter 4 or 5 of Part 2 apply.
(3) “The eligible employment” means the employment which results in the individual meeting the employment requirement in relation to the plan.
501 Charge on capital receipts in respect of plan shares
(1) This section applies if conditions A and B are met.
(2) Condition A is that a capital receipt is received by a participant in respect of, or by reference to, any of the participant’s plan shares.
(3) Condition B is that the plan shares in respect of, or by reference to, which the capital receipt is received are—
(a) free, matching or partnership shares that were awarded to the participant less than 5 years before the participant received the capital receipt, or
(b) dividend shares that were acquired on behalf of the participant less than 3 years before the participant received the capital receipt.
(4) If this section applies, the amount or value of the capital receipt counts as employment income of the participant for the relevant tax year.
(5) The “relevant tax year” is the tax year in which the participant receives the capital receipt.
(6) This section does not apply if the capital receipt is received by the participant’s personal representatives after the death of the participant.
(7) Section 502 explains what is meant by a “capital receipt”.