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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

    249

 

Charges connected with shares ceasing to be subject to plan

 505   Charge on free or matching shares ceasing to be subject to plan

     (1)    When free or matching shares cease to be subject to the plan, there may be an

amount that counts as employment income of the participant depending on the

period that has elapsed between—

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           (a)           the date when the shares were awarded to the participant (“the award

date”), and

           (b)           the date when they cease to be subject to the plan (“the exit date”).

     (2)    If the period is less than 3 years, the market value of the shares at the exit date

counts as employment income of the participant for the relevant tax year (see

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subsection (5)).

     (3)    If the period is 3 years or more but less than 5 years, whichever is the lesser of—

           (a)           the market value of the shares at the award date, and

           (b)           the market value of the shares at the exit date,

            counts as employment income of the participant for the relevant tax year (see

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subsection (5)).

     (4)    Where—

           (a)           subsection (3) applies, and

           (b)           the applicable amount is the market value of the shares at the award

date,

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            the tax due is reduced by the amount or aggregate amount of any tax paid by

virtue of section 501 (charge on capital receipts in respect of plan shares) on any

capital receipts in respect of the shares.

     (5)    The “relevant tax year” is the tax year in which the exit date falls.

     (6)    No liability to tax arises by virtue of this section—

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           (a)           on the forfeiture of free or matching shares,

           (b)           if section 498 (no charge on shares ceasing to be subject to plan in

certain circumstances) applies, or

           (c)           if section 507 (charge on disposal of beneficial interest in holding

period) applies.

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 506   Charge on partnership shares ceasing to be subject to plan

     (1)    When partnership shares cease to be subject to the plan, there may be an

amount that counts as employment income of the participant depending on the

period that has elapsed between—

           (a)           the acquisition date in respect of those shares (as defined by paragraph

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50(4) or, as the case may be, paragraph 52(5) of Schedule 2), and

           (b)           the date when they cease to be subject to the plan (“the exit date”).

     (2)    If the period is less than 3 years, the market value of the shares at the exit date

counts as employment income of the participant for the relevant tax year (see

subsection (5)).

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     (3)    If the period is 3 years or more but less than 5 years, whichever is the lesser of—

           (a)           the amount of partnership share money used to acquire the shares, and

           (b)           the market value of the shares at the exit date,

 

 

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

    250

 

            counts as employment income of the participant for the relevant tax year (see

subsection (5)).

     (4)    Where—

           (a)           subsection (3) applies, and

           (b)           the applicable amount is the amount of partnership share money used

5

to acquire the shares,

            the tax due is reduced by the amount or aggregate amount of any tax paid by

virtue of section 501 (charge on capital receipts in respect of plan shares) on any

capital receipts in respect of the shares.

     (5)    The “relevant tax year” is the tax year in which the exit date falls.

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     (6)    No liability to income tax arises by virtue of this section if section 498 (no

charge on shares ceasing to be subject to plan in certain circumstances) applies.

 507   Charge on disposal of beneficial interest during holding period

     (1)    This section applies if—

           (a)           free or matching shares cease to be subject to the plan at any time

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during the holding period for those shares, and

           (b)           this occurs as a result of the participant assigning, charging or

otherwise disposing of the participant’s beneficial interest in the shares

in breach of obligations under paragraph 36(1)(b) of Schedule 2

(restrictions relating to disposals within holding period).

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     (2)    The market value of the shares at the date when they cease to be subject to the

plan counts as employment income of the participant for the relevant tax year.

     (3)    The “relevant tax year” is the tax year in which that date falls.

 508   Identification of shares ceasing to be subject to plan

     (1)    For the purpose of determining any liability to tax arising by virtue of the SIP

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code in respect of any of a participant’s shares ceasing to be subject to the

plan—

           (a)           shares are to be taken as ceasing to be subject to the plan in the order in

which they were awarded to the participant under the plan, and

           (b)           where shares are awarded to the participant on the same day, the

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shares are to be treated as ceasing to be subject to the plan in the order

which gives rise to the lowest charge to income tax on the participant.

     (2)    For the purposes of subsection (1) dividend shares are “awarded” to a

participant when the trustees acquire them on behalf of, or appropriate them

to, the participant.

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PAYE

 509   Modification of section 696 where charge on shares ceasing to be subject to

plan

     (1)    Where—

           (a)           as a result of shares ceasing to be subject to an approved SIP, there is an

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amount that counts as employment income of a participant by virtue of

the SIP code, and

 

 

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

    251

 

           (b)           the shares are readily convertible assets,

             section 696 (readily convertible assets) applies as follows.

     (2)    Section 696 applies as if the participant (“P”) were being provided with PAYE

income in the form of those shares—

           (a)           at the time when the shares cease to be subject to the plan, and

5

           (b)           in respect of the relevant employment in which P is employed at that

time (or, if P is not then employed in relevant employment, the relevant

employment in which P was last employed before that time).

     (3)    In addition, subsection (2) of section 696 applies as if the reference in that

subsection to the amount of income likely to be PAYE income in respect of the

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provision of the asset were a reference to the amount which is likely to count

as employment income by virtue of the SIP code as a result of the shares

ceasing to be subject to the plan.

     (4)    In this section “readily convertible asset” has the same meaning as in section

696 (see sections 701 and 702), but this is subject to subsection (5).

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     (5)    In determining for the purposes of this section (and of section 696 in its

application in accordance with this section) whether the shares are readily

convertible shares, any market for the shares which—

           (a)           is created by virtue of the trustees acquiring shares for the purposes of

the plan, and

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           (b)           exists solely for the purposes of the plan,

            is to be disregarded.

 510   Payments by trustees to employer company on shares ceasing to be subject to

plan

     (1)    This section applies if, as a result of any shares (“the relevant shares”) ceasing

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to be subject to an approved SIP—

           (a)           there is an amount that counts as employment income of a participant

by virtue of the SIP code, and

           (b)           an obligation to make a PAYE deduction arises in respect of that

amount.

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     (2)    The trustees must pay to the employer company a sum which is sufficient to

enable the employer company to discharge that obligation.

     (3)    Subsection (2) is subject to—

           (a)           subsection (4), and

           (b)           section 511 (PAYE deductions to be made by trustees on shares ceasing

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to be subject to plan).

     (4)    Subsection (2) only applies if, or to the extent that, the plan does not require the

participant to pay the employer company a sum which is sufficient to

discharge the obligation mentioned in subsection (1)(b).

     (5)    Section 710(1) (notional payments: accounting for tax) has effect as if it

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required the deduction of income tax to be made from any sum or sums

received by the employer company—

           (a)           from the trustees under subsection (2), or

           (b)           from the participant in accordance with a requirement of the plan, as

mentioned in subsection (4).

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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

    252

 

     (6)    After making the necessary PAYE deduction from the sum or sums received as

mentioned in subsection (5), the employer company must pay any remaining

amount to the participant.

     (7)    In this section “the employer company” means—

           (a)           the company which employs the participant in relevant employment at

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the time when the relevant shares cease to be subject to the plan, or

           (b)           if the participant is not then employed in relevant employment, the

company which last employed the participant in relevant employment

before that time,

            so long as that company is one to which PAYE regulations apply at that time.

10

 511   PAYE deductions to be made by trustees on shares ceasing to be subject to

plan

     (1)    This section applies if, as a result of any shares ceasing to be subject to an

approved SIP—

           (a)           there is an amount that counts as employment income of a participant

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by virtue of the SIP code, and

           (b)           condition A or B is met.

     (2)    Condition A is that the Inland Revenue—

           (a)           are of the opinion that it is impracticable for the employer company

(within the meaning of section 510) to make a PAYE deduction, and

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           (b)           accordingly direct that this section is to apply.

     (3)    Condition B is that there is no company that qualifies as the employer company

(within the meaning of that section).

     (4)    If this section applies—

           (a)           section 510(2) does not apply, and

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           (b)           the trustees must make a PAYE deduction in respect of the taxable

equivalent as if the participant were a former employee of the trustees.

     (5)    The “taxable equivalent” means an amount equal to that mentioned in

subsection (1).

     (6)    If this section applies, section 689 (employee of non-UK employer) does not

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apply.

 512   Disposal of beneficial interest by participant

     (1)    This section applies if—

           (a)           a participant (“P”) disposes of P’s beneficial interest in any of P’s plan

shares to the trustees, and

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           (b)           the trustees are, as a result of paragraph 6 of Schedule 7D to TCGA

(deemed disposal by trustees on disposal of beneficial interest), treated

as having disposed of the shares in question.

     (2)    If this section applies, sections 510 and 511 apply as if the consideration

payable by the trustees to the participant on the disposal had been received by

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the trustees as the proceeds of disposal of plan shares.

 

 

 
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