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Income Tax (Earnings and Pensions) Bill


Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 6 — Approved share incentive plans

    244

 

Scope of tax advantages

 489   Operation of tax advantages in connection with approved SIP

     (1)    Sections 490 to 499 apply for income tax purposes in connection with shares

awarded under an approved SIP.

     (2)    But those sections do not apply to an individual if, at the time of the award of

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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.

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Tax advantages connected with award of shares

 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

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           (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.

 491   No charge on award of shares as taxable benefit

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An employee is not liable to income tax by virtue of Chapter 8 of Part 3 (taxable

benefits: acquisitions of shares) in respect of an award of shares to the

employee under the plan.

 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

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employee’s salary which is deducted as partnership share money under a

partnership share agreement.

     (2)    But the deduction of partnership share money is to be disregarded for the

purpose of ascertaining—

           (a)           the amount of the employee’s remuneration for the purposes of

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Chapter 1 of Part 14 of ICTA (retirement benefit schemes), or

           (b)           the amount of the employee’s relevant earnings for the purposes of

Chapter 3 or 4 of that Part of that Act (retirement annuities or personal

pension schemes).

 493   No charge on acquisition of dividend shares

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     (1)    A participant is not liable to income tax on the amount applied by the trustees

in acquiring dividend shares on behalf of the participant.

     (2)    The participant has no entitlement to a tax credit in respect of the amount so

applied.

 

 

Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 6 — Approved share incentive plans

    245

 

     (3)    Section 234A(4) of ICTA (information relating to distributions to be provided

by nominee) does not apply to any amount applied by the trustees in acquiring

dividend shares on behalf of a participant.

     (4)    Subsections (1) and (2) do not affect—

           (a)           any charge under section 68B(2) or 251C(1) of ICTA (charge under Case

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V of Schedule D or Schedule F on dividend shares ceasing to be subject

to plan), or

           (b)           any entitlement to a tax credit in respect of the amount so charged.

     (5)    Subsection (3) is subject to paragraph 80(4)(c) of Schedule 2 (information

required where dividend shares cease to be subject to plan).

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Tax advantages connected with holding of shares

 494   No charge on removal of restrictions applying to shares

     (1)    Subsection (2) applies where a participant’s plan shares are subject to a

provision for forfeiture in accordance with paragraph 32(1) of Schedule 2

(permitted restrictions: provision for forfeiture).

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     (2)    The participant is not liable to income tax by virtue of—

           (a)           section 427 (charge on interest in shares ceasing to be only conditional

or on disposal), or

           (b)           section 449 (charge on removal of restriction applying to shares),

            when the provision for forfeiture is varied or removed.

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     (3)    A participant is also not liable to income tax by virtue of section 449 if the event

which, under section 450, is a chargeable event for the purposes of that section

is the ending of the holding period in relation to free, matching or dividend

shares held by the participant.

 495   No charge on increase in value of shares             in dependent subsidiary

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     (1)    A participant is not liable to income tax by virtue of section 453 (charge on

increase in value of shares of dependent subsidiary) in respect of any of the

participant’s shares that are subject to the plan at or immediately before the

appropriate time.

     (2)    “The appropriate time” means the time by reference to which a chargeable

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increase is determined for the purposes of that section (see section 454(3) or

(5)).

 496   No charge on cash dividend retained for reinvestment

     (1)    A participant is not liable to income tax in respect of an amount retained under

paragraph 68(2) of Schedule 2 (amount of cash dividend not reinvested).

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     (2)    The participant has no entitlement to a tax credit in respect of an amount so

retained.

     (3)    This section does not affect any charge under—

           (a)           section 68B(1) or 251B(1) of ICTA (charge under Case V of Schedule D

or Schedule F where cash dividend retained and then later paid out), or

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Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 6 — Approved share incentive plans

    246

 

           (b)           section 68B(2) or 251C(1) of ICTA (charge under Case V of Schedule D

or Schedule F on dividend shares ceasing to be subject to plan),

            or affect any tax credit in respect of an amount so charged.

Tax advantages connected with shares ceasing to be subject to plan

 497   Limitations on charges on shares ceasing to be subject to plan

5

     (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

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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

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plan, except as provided by section 68B(2) or 251C(1) of ICTA (charge under

Case V of Schedule D or Schedule F on dividend shares ceasing 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

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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

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employment—

           (a)           because of injury or disability,

           (b)           on being dismissed by reason of redundancy,

           (c)           by reason of a transfer to which the Transfer of Undertakings

(Protection of Employment) Regulations 1981 (S.I. 1981/1794) apply,

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           (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 on or after reaching the

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specified retirement age (see paragraph 98 of Schedule 2), or

           (f)           on the participant’s death.

Tax advantages: supplementary

 499   No charge in respect of incidental expenditure

An employee is not liable to income tax in respect of incidental expenditure

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of—

           (a)           the trustees,

 

 

Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 6 — Approved share incentive plans

    247

 

           (b)           the company which established the plan, or

           (c)           (if different) the employer,

            in operating the plan.

Scope of tax charges

 500   Operation of tax charges in connection with approved SIP

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     (1)    Sections 501 to 508 apply for income tax purposes in connection with shares

awarded under an approved 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

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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.

Charges connected with holding of shares

 501   Charge on capital receipts in respect of plan shares

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     (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—

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           (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.

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     (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

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personal representatives after the death of the participant.

     (7)    Section 502 explains what is meant by a “capital receipt”.

 502   Meaning of “capital receipt” in section 501

     (1)    This section applies for determining whether any money or money’s worth is

a “capital receipt” for the purposes of section 501.

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     (2)    The general rule is that any money or money’s worth is a “capital receipt” for

the purposes of section 501.

     (3)    The general rule is subject to the following exceptions.

 

 

Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 6 — Approved share incentive plans

    248

 

     (4)    Money or money’s worth is not a capital receipt for the purposes of section 501

to the extent that—

           (a)           it constitutes income in the hands of the recipient for the purposes of

income tax or would do so but for sections 489 to 498 (SIPs: tax

advantages),

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           (b)           it consists of the proceeds of disposal of the plan shares mentioned in

section 501, or

           (c)           it consists of new shares within the meaning of paragraph 87 of

Schedule 2 (company reconstructions).

     (5)    If, as a result of a direction given by or on behalf of the participant for the

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purposes of paragraph 77 of Schedule 2 (power of trustees to raise funds to

subscribe for rights issues), the trustees—

           (a)           dispose of some of the rights under a rights issue, and

           (b)           use the proceeds of that disposal to exercise other such rights,

            the money or money’s worth constituting the proceeds of that disposal is not a

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capital receipt for the purposes of section 501.

 503   Charge on partnership share money paid over to employee

     (1)    Any amount paid over to an individual under any of the provisions of

Schedule 2 mentioned in subsection (2) counts as employment income of the

individual for the relevant tax year.

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     (2)    The provisions are—

                    paragraph 46(5) (deductions in excess of permitted maximum amount),

                    paragraph 50(5)(b) or paragraph 52(6)(b) (surplus partnership share

money remaining after acquisition of shares),

                    paragraph 52(7) (partnership share money paid over on individual

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ceasing to be in relevant employment),

                    paragraph 52(8) (partnership share money paid over where accumulation

period brought to an end by event specified in plan),

                    paragraph 55(3) (partnership share money paid over on withdrawal from

partnership share agreement), or

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                    paragraph 56 (partnership share money paid over on withdrawal of plan

approval or termination of plan).

     (3)    The “relevant tax year” is the tax year in which the amount is paid over.

 504   Charge on cancellation payments in respect of partnership share agreement

     (1)    This section applies if an individual who has entered into a partnership share

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agreement receives any money or money’s worth in respect of the cancellation

of the agreement.

     (2)    The amount of the money or the value of the money’s worth counts as

employment income of the individual for the relevant tax year.

     (3)    The “relevant tax year” is the tax year in which the individual receives the

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money or money’s worth.

 

 

 
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Revised 17 February 2003