Income Tax (Trading and Other Income) Act 2005

394 Distribution when dividend shares cease to be subject to SIP U.K.

(1) This section applies if dividend shares cease to be subject to [F3 a Schedule 2] share incentive plan before the end of the period of 3 years beginning with the date on which the shares were acquired on the participant's behalf.

(2) For income tax purposes a distribution is treated as made to the participant in the tax year in which the shares cease to be subject to the plan.

(3) The amount of the distribution treated as made is the amount of the cash dividend applied to acquire the shares on the participant's behalf, so far as it represents a cash dividend paid in respect of plan shares in a UK resident company.

[F4 (3A) But if the shares cease to be subject to the plan by virtue of a provision of the kind mentioned in paragraph 65(2) of Schedule 2 to ITEPA 2003 (provision requiring dividend shares to be offered for sale), the amount of the distribution treated as made is the amount equal to the relevant fraction of the market value of the shares at the time they are offered for sale if that amount is less than the amount given by subsection (3).

(3B) For the purposes of subsection (3A) “the relevant fraction” is—

where—

A is so much of the amount of the cash dividend applied to acquire the shares on the participant's behalf as represents a cash dividend paid in respect of plan shares in a UK resident company, and

B is the amount of the cash dividend applied to acquire the shares on the participant's behalf.

(3C) Paragraph 92(2) of Schedule 2 to ITEPA 2003 (market value of shares subject to a restriction) applies for the purposes of subsection (3A).]

(4) The person liable for any tax charged on the distribution as a result of this section is the participant.

(5) For the purposes of determining—

(a) whether the participant is entitled to a tax credit under section 397 in respect of a distribution so charged, and

(b) if so, the amount of that tax credit,

that section applies as it has effect for the tax year in which the shares cease to be subject to the plan.

(6) But for the purposes of this Chapter, the question whether the distribution under subsection (2) is a distribution by a company that is UK resident is determined by reference to the year in which the company paid the dividend applied to acquire the shares on the participant's behalf.

(7) For rules identifying shares ceasing to be subject to [F5 Schedule 2] share incentive plans, see section 508 of ITEPA 2003.

Textual Amendments

F3 Words in s. 394(1) substituted (6.4.2014) by Finance Act 2014 (c. 26), Sch. 8 paras. 57(2), 89 (with Sch. 8 paras. 90-96)

F4 S. 394(3A)-(3C) inserted (6.4.2014) by Finance Act 2014 (c. 26), Sch. 8 paras. 57(3), 89 (with Sch. 8 paras. 90-96)

F5 Words in s. 394(7) substituted (6.4.2014) by Finance Act 2014 (c. 26), Sch. 8 paras. 57(4), 89 (with Sch. 8 paras. 90-96)