Chapter 5: Share incentive plans
Overview
1427.This Chapter is based on sections 686B and 686C of ICTA.
1428.Under a share incentive plan, shares which are not “plan shares” (see paragraph 99(1) of Schedule 2 to ITEPA) are held on accumulation or discretionary trusts. So the trustees’ dividend income arising from such shares is potentially chargeable at the dividend trust rate under section 479. But this Chapter provides that such a charge on approved plans does not arise if the shares are awarded to participants in the plan within an “applicable period” (defined in section 489).
Section 488: Application of section 479 to trustees of approved share incentive plans
1429.This section sets out the circumstances in which section 479 applies to approved share incentive plans. It is based on sections 686B(1), (2) and (6) and 686C(3) of ICTA.
1430.Subsection (1) gives the basic condition that the section applies to dividends or other distributions received by the trustees of approved share incentive plans.
1431.Subsections (2) to (4) provide that the charge at the dividend trust rate under section 479 arises only if and when the shares are disposed of or the “applicable period” comes to an end without the shares having been awarded to participants in accordance with the plan.
1432.Subsection (5) provides that, if shares of the same class are acquired by the trustees at different times, they are treated as awarding shares acquired earlier before shares acquired later.
1433.Subsection (6) explains that, for the purposes of this section, shares are also treated as awarded when they are acquired on behalf of a participant as dividend shares.
Section 489: “The applicable period” in relation to shares
1434.This section explains the meaning of “the applicable period”. It is based on sections 686B(3) to (5) and 686C(4) and (5) of ICTA.
1435.Subsections (2) to (4) state the basic rule that the applicable period ends at the earliest of:
five years from the acquisition of the shares;
two years from the acquisition of the shares if any shares in the company were readily convertible assets at that time; and
two years from the date that any shares in the company became readily convertible assets.
1436.Subsections (5) and (6) provide that the basic rule is varied in a case where the shares were acquired in consequence of a contribution to the plan by the company for which it is allowed a deduction under paragraph 9 of Schedule 4AA to ICTA. In such a case the applicable period ends ten years after the shares were acquired.
Section 490: Interpretation of Chapter
1437.This section makes provision about the interpretation of the Chapter. It is based on sections 686B(7) and 686C(1) and (2) of ICTA.
