Income Tax (Trading and Other Income) Act 2005 (c. 5)

Part 4 U.K. Savings and investment income

Chapter 3 U.K. Dividends etc. from UK resident companies [F1 and tax [F2 treated as paid] in respect of certain distributions]

Textual Amendments

F1 Words in Pt. 4 Ch. 3 heading substituted (with effect in accordance with s. 34(2) of the amending Act) by Finance Act 2008 (c. 9), Sch. 12 para. 2

F2 Words in Pt. 4 Ch. 3 heading substituted (with effect in accordance with Sch. 1 para. 73 of the amending Act) by Finance Act 2016 (c. 24), Sch. 1 para. 3

Shares in [F3 Schedule 2] share incentive plans (“SIPs”) U.K.

Textual Amendments

F3 Words in s. 392 cross-heading substituted (6.4.2014) by Finance Act 2014 (c. 26), Sch. 8 paras. 55, 89 (with Sch. 8 paras. 90-96)

392 SIP shares: introduction U.K.

(1) Sections 393 to 395 contain special rules about the charge under this Chapter in respect of shares awarded to an individual under [F4 a Schedule 2] share incentive plan.

(2) Those sections only apply if condition A or B was met at the time the shares in question were so awarded.

(3) Condition A is that—

(a) the earnings from the eligible employment were general earnings (see section 7(3) of ITEPA 2003) to which any of the charging provisions of Chapter 4 or 5 of Part 2 of ITEPA 2003 applied, or

(b) if there had been any earnings from it, they would have been such earnings.

(4) In subsection (3)—

(a) “the eligible employment” means the employment resulting in the individual meeting the employment requirement in relation to the plan, and

(b) the reference to any of the charging provisions of Chapter 4 or 5 of Part 2 of ITEPA 2003 has the same meaning as it has in the employment income Parts of that Act (see sections 14(3) and 20(3) of that Act).

(5) Condition B is that—

(a) the shares were awarded before 6th April 2003, and

(b) the individual was liable for tax under Schedule E in respect of the relevant employment.

(6) In subsection (5) “the relevant employment” means the employment by reference to which the individual met the requirements in paragraph 14 of Schedule 8 to FA 2000 (employee share ownership plans: the employment requirement) in relation to the plan.

(7) See section 396 for the general interpretation of this section and sections 393 to 395.

Textual Amendments

F4 Words in s. 392(1) substituted (6.4.2014) by Finance Act 2014 (c. 26), Sch. 8 paras. 56, 89 (with Sch. 8 paras. 90-96)

393 Later charge where cash dividends retained in SIPs are paid over U.K.

(1) This section applies if a cash dividend is paid over to a participant under paragraph 68(4) of Schedule 2 to ITEPA 2003 (cash dividend paid over if not reinvested etc.).

(2) Tax charged under this Chapter is charged for the tax year in which the cash dividend is paid over instead of the tax year in which it was originally paid.

(3) Tax so charged is charged on the amount of the cash dividend paid over.

(4) The person liable for any tax so charged is the participant.

F5 (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6) For the purposes of this Chapter, the question whether a cash dividend paid over to a participant under paragraph 68(4) of Schedule 2 to ITEPA 2003 is a dividend paid by a company that is UK resident is determined by reference to the tax year in which the dividend was originally paid.

Textual Amendments

F5 S. 393(5) omitted (with effect in accordance with Sch. 1 para. 73 of the amending Act) by virtue of Finance Act 2016 (c. 24), Sch. 1 para. 6

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 [F6 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.

[F7 (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.

F8 (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6) [F9 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 [F10 Schedule 2 ] share incentive plans, see section 508 of ITEPA 2003.

Textual Amendments

F6 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)

F7 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)

F8 S. 394(5) omitted (with effect in accordance with Sch. 1 para. 73 of the amending Act) by virtue of Finance Act 2016 (c. 24), Sch. 1 para. 7(a)

F9 Word in s. 394(6) substituted (with effect in accordance with Sch. 1 para. 73 of the amending Act) by Finance Act 2016 (c. 24), Sch. 1 para. 7(b)

F10 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)

395 Reduction in tax due in cases within section 394 U.K.

(1) This section applies if—

(a) a person is liable to tax as a result of section 394, and

(b) any tax is paid on any capital receipts under section 501 of ITEPA 2003 (charge on capital receipts in respect of plan shares) in respect of the shares that cease to be subject to the [F11 Schedule 2] share incentive plan.

(2) The tax due is to be reduced by an amount equal to the total tax so paid.

(3) In subsection (2) “the tax due” means the amount of tax due as a result of section 394 F12 ....

(4) For rules identifying shares ceasing to be subject to [F13 Schedule 2] share incentive plans, see section 508 of ITEPA 2003.

Textual Amendments

F11 Words in s. 395(1)(b) substituted (6.4.2014) by Finance Act 2014 (c. 26), Sch. 8 paras. 58, 89 (with Sch. 8 paras. 90-96)

F12 Words in s. 395(3) omitted (with effect in accordance with Sch. 1 para. 73 of the amending Act) by virtue of Finance Act 2016 (c. 24), Sch. 1 para. 8

F13 Words in s. 395(4) substituted (6.4.2014) by Finance Act 2014 (c. 26), Sch. 8 paras. 58, 89 (with Sch. 8 paras. 90-96)

396 Interpretation of sections 392 to 395 U.K.

(1) This section and sections 392 to 395 form part of the SIP code (see section 488 of ITEPA 2003 (F14 ... share incentive plans)).

(2) Accordingly, expressions used in this section or those sections and contained in the index in paragraph 100 of Schedule 2 to that Act (F15 ... share incentive plans) have the meaning indicated by that index.

(3) In particular—

(a) for the meaning of “award of shares” see paragraph 5(1) of that Schedule,

(b) for the meaning of “ceasing to be subject to plan” see paragraph 97 of that Schedule,

(c) for the meaning of “dividend shares” see paragraph 62(3)(b) of that Schedule,

(d) for the meaning of “employment requirement” see paragraph 15(3) of that Schedule,

(e) for the meaning of “participant” see paragraph 5(4) of that Schedule,

(f) for the meaning of “plan shares” see paragraphs 86 to 88 and 99(1) of that Schedule, and

(g) for the meaning of “shares” see paragraphs 87(6) and 99(2) of that Schedule.

Textual Amendments

F14 Word in s. 396(1) omitted (6.4.2014) by virtue of Finance Act 2014 (c. 26), Sch. 8 paras. 59, 89 (with Sch. 8 paras. 90-96)

F15 Word in s. 396(2) omitted (6.4.2014) by virtue of Finance Act 2014 (c. 26), Sch. 8 paras. 59, 89 (with Sch. 8 paras. 90-96)