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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

    253

 

 513   Capital receipts: payments by trustees to employer company

     (1)    This section applies if the trustees receive a sum of money which constitutes (or

forms part of) a capital receipt which, by virtue of the SIP code, counts as

employment income of a participant when it is received by the participant.

     (2)    Out of that sum of money the trustees must pay to the employer company an

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amount equal to the amount of employment income.

     (3)    The employer company must then pay over that amount to the participant, but

when doing so must make a PAYE deduction.

     (4)    This section is subject to section 514 (capital receipts: deductions to be made by

trustees).

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

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

the time when the trustees receive the sum mentioned in subsection (1),

or

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

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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.

 514   Capital receipts: PAYE deductions to be made by trustees

     (1)    This section applies if—

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           (a)           the trustees receive a sum of money which constitutes (or forms part of)

a capital receipt which, by virtue of the SIP code, counts as employment

income of a participant when it is received by the participant, and

           (b)           either condition A or B is met.

     (2)    Condition A is that the Inland Revenue—

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

(within the meaning of section 513) to make a PAYE deduction, and

           (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).

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     (4)    If this section applies, the trustees must, when paying the capital receipt over

to the participant, 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 the amount which counts

as employment income as mentioned in subsection (1)(a).

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

apply.

Other tax consequences

 515   Tax advantages and charges under other Acts

     (1)    The following provisions of ICTA relate to SIPs—

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Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 7 — Approved SAYE option schemes

    254

 

           (a)           sections 68A to 68C and 251A to 251D (which provide for amounts to

be charged to income tax under Schedule D Case V or Schedule F

where—

                  (i)                 dividends are paid out to participants under an approved SIP,

or

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                  (ii)                dividend shares cease to be subject to the plan in certain

circumstances),

           (b)           sections 686B and 686C (which provide for section 686 of that Act

(accumulation and discretionary trusts: special rates of tax) not to apply

to income of the trustees of an approved SIP in certain circumstances),

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and

           (c)           Schedule 4AA (which makes provision about deductions allowed in

calculating trade profits for corporation tax purposes in respect of

certain of a company’s expenses relating to—

                  (i)                 providing shares for the purposes of an approved SIP, or

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                  (ii)                the establishment or operation of the plan).

     (2)    SIPs are also dealt with in—

           (a)           Part 1 of Schedule 7D to TCGA 1992 (which provides for relief from

capital gains tax for the trustees and for participants in relation to an

approved SIP in certain circumstances, including where shares cease to

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be subject to the plan), and

           (b)           section 95 of FA 2001 (which contains relief from stamp duty and stamp

duty reserve tax for transfers of partnership or dividend shares).

     (3)    The references in this section to ICTA, TCGA 1992 and FA 2001 are to those

Acts as amended by Schedule 6 to this Act.

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Chapter 7

Approved SAYE option schemes

Introduction

 516   Approved SAYE option schemes

     (1)    This Chapter provides—

30

           (a)           for the approval of SAYE option schemes by the Inland Revenue, and

           (b)           for exemptions from income tax in connection with share options

granted under those schemes.

     (2)    Schedule 3 contains the requirements that have to be met for an SAYE option

scheme to be approved, together with the approval procedure.

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     (3)    The provisions of—

           (a)           this and the following sections of this Chapter,

           (b)           Schedule 3, and

           (c)           Part 2 of Schedule 7D to TCGA 1992 (approved SAYE option schemes:

amount of consideration on exercise of option),

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            together constitute “the SAYE code”.

     (4)    In the SAYE code—

 

 

Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 7 — Approved SAYE option schemes

    255

 

                    “approved” means approved by the Inland Revenue under Schedule 3

(see paragraph 1 of the Schedule);

                    “SAYE option scheme” means a scheme (commonly referred to as an

SAYE share option scheme) which is established by a company and

provides—

5

                  (a)                 for share options to be granted to employees and directors, and

                  (b)                 for the shares acquired by the exercise of the share options to be

paid for in the way mentioned in paragraph 24 of Schedule 3

(payments for shares to be linked to approved savings

schemes);

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                    “share option” means a right to acquire shares in a company;

                    “shares” includes stock.

     (5)    Other expressions used in the SAYE code and contained in the index at the end

of Schedule 3 have the meaning indicated by the index.

 517   Share options to which this Chapter applies

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     (1)    This Chapter applies to a share option granted to an individual—

           (a)           in accordance with the provisions of an approved SAYE option scheme,

and

           (b)           by reason of the individual’s office or employment as a director or

employee of a company.

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     (2)    The individual may be a director or employee of the company whose shares are

the subject of the share option, or of some other company.

Tax advantages

 518   No charge in respect of receipt of option

No liability to income tax arises in respect of the receipt of the share option.

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 519   No charge in respect of exercise of option

     (1)    No liability to income tax arises in respect of the exercise of the share option

if—

           (a)           the individual exercises it in accordance with the provisions of the

SAYE option scheme at a time when the scheme is approved, and

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           (b)           Condition A or B is met.

     (2)    Condition A is that the option is exercised on or after the third anniversary of

the date on which it was granted.

     (3)    Condition B is that the option—

           (a)           is exercised before the third anniversary of the date on which it was

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granted, and

           (b)           is so exercised otherwise than by virtue of a provision included in the

scheme under—

                                  paragraph 34(5) of Schedule 3 (exercise of option where scheme-

related employment ends), or

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                                  paragraph 37 of that Schedule (exercise of option where certain

company events occur).

 

 

Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 8 — Approved CSOP schemes

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     (4)    This section does not affect the operation of section 477(4) (no charge on

exercise of option by personal representatives etc.).

     (5)    In Schedule 3

           (a)           paragraph 32 provides for the exercise of an option where the holder

has died, and

5

           (b)           paragraph 42(3) provides for an SAYE option scheme to be treated as

approved at the time when an option is exercised even though

approval of the scheme has been previously withdrawn.

 520   No charge in respect of post-acquisition benefits

     (1)    This section applies if—

10

           (a)           the individual exercises the share option in accordance with the

provisions of the SAYE option scheme at a time when the scheme is

approved, and

           (b)           Condition A or B (as set out in section 519(2) or (3)) is met.

     (2)    No liability to income tax arises by virtue of—

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                    section 449 (charge where restrictions or rights varied after acquisition), or

                    section 453 (charge on increase in value of shares in dependent

subsidiaries),

            in respect of shares acquired by the exercise of the share option.

     (3)    Paragraph 42(3) of Schedule 3 provides for an SAYE option scheme to be

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treated as approved at the time when an option is exercised even though

approval of the scheme has been previously withdrawn.

Chapter 8

Approved CSOP schemes

Introduction

25

 521   Approved CSOP schemes

     (1)    This Chapter provides—

           (a)           for the approval of CSOP schemes by the Inland Revenue,

           (b)           for exemptions from income tax in connection with share options

granted under those schemes, and

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           (c)           for amounts to count as employment income in certain circumstances

in connection with such options.

     (2)    Schedule 4 contains the requirements that have to be met for a CSOP scheme

to be approved, together with the approval procedure.

     (3)    The provisions of—

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           (a)           this and the following sections of this Chapter,

           (b)           Schedule 4, and

           (c)           Part 3 of Schedule 7D to TCGA 1992 (approved CSOP schemes: amount

of consideration on exercise of option),

            together constitute “the CSOP code”.

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Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 8 — Approved CSOP schemes

    257

 

     (4)    In the CSOP code—

                    “approved” means approved by the Inland Revenue under Schedule 4

(see paragraph 1 of the Schedule);

                    “CSOP scheme” means a scheme (commonly referred to as a company

share option plan) which—

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                  (a)                 is established by a company,

                  (b)                 provides for share options to be granted to employees and

directors, and

                  (c)                 is not an SAYE option scheme (within the meaning of the SAYE

code: see section 516(4));

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                    “share option” means a right to acquire shares in a company;

                    “shares” includes stock.

     (5)    Other expressions used in the CSOP code and contained in the index at the end

of Schedule 4 have the meaning indicated by the index.

 522   Share options to which this Chapter applies

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     (1)    This Chapter applies to a share option granted to an individual—

           (a)           in accordance with the provisions of an approved CSOP scheme, and

           (b)           by reason of the individual’s office or employment as a director or

employee of a company.

     (2)    The individual may be a director or employee of the company whose shares are

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the subject of the share option, or of some other company.

Tax advantages

 523   No charge in respect of receipt of option

     (1)    No liability to income tax arises in respect of the receipt of the share option.

     (2)    But this is subject to section 526 (charge where option granted at a discount).

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 524   No charge in respect of exercise of option

     (1)    No liability to income tax arises in respect of the exercise of the share option

if—

           (a)           the individual exercises it in accordance with the provisions of the

CSOP scheme at a time when the scheme is approved, and

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           (b)           the condition in subsection (2) is met.

     (2)    The condition is that—

           (a)           the option (“the current option”) is exercised—

                  (i)                 on or after the third anniversary of the date on which it was

granted, but

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                  (ii)                not later than the tenth anniversary of that date, and

           (b)           the individual has not made an exempt exercise of another option

within the period of 3 years ending with the date on which the current

option is exercised.

     (3)    For the purposes of subsection (2)—

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Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 8 — Approved CSOP schemes

    258

 

           (a)           an individual has made an exempt exercise of another option if the

individual has exercised a share option granted under the scheme, or

under any other approved CSOP scheme, in circumstances in which

subsection (1) applied to its exercise, and

           (b)           an option exercised on the same day as the current option is to be

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disregarded.

     (4)    This section does not affect the operation of section 477(4) (no charge on

exercise of option by personal representatives etc.).

     (5)    Paragraph 25 of Schedule 4 provides for the exercise of an option where the

holder has died.

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 525   No charge in respect of post-acquisition benefits

     (1)    This section applies if—

           (a)           the individual exercises the share option in accordance with the

provisions of the CSOP scheme at a time when the scheme is approved,

and

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           (b)           the condition set out in section 524(2) is met.

     (2)    No liability to income tax arises by virtue of—

                    section 449 (charge where restrictions or rights varied after acquisition), or

                    section 453 (charge on increase in value of shares in dependent

subsidiaries),

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            in respect of shares acquired by the exercise of the option.

Tax charge

 526   Charge where option granted at a discount

     (1)    This section applies if, at the time when the share option is granted to the

individual, the aggregate of—

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           (a)           the amount or value of any consideration given by the individual for

the grant of the option, and

           (b)           the amount payable by the individual, on exercising the option, in

order to acquire the maximum number of shares that may be acquired

under it,

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            is less than the market value of the same quantity of issued shares of the same

class.

     (2)    The amount of the difference counts as employment income of the individual

for the relevant tax year.

     (3)    The “relevant tax year” is the tax year in which the option is granted to the

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individual.

     (4)    The following provisions, namely—

           (a)           section 194 (amount of notional loan in respect of acquisition of shares

for less than market value), and

           (b)           sections 479 and 480 (amount of gain realised by exercising, assigning

40

or releasing option),

            provide for deductions to be made to take account of amounts that count as

employment income under this section.

 

 

Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 9 — Enterprise management incentives

    259

 

Chapter 9

Enterprise management incentives

Introduction

 527   Enterprise management incentives: qualifying options

     (1)    This Chapter provides—

5

           (a)           for share options notified to the Inland Revenue to be qualifying

options for the purposes of the EMI code, and

           (b)           for exemptions and reliefs from income tax in connection with

qualifying options.

     (2)    Schedule 5 contains the requirements that have to be met for a share option to

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be a qualifying option, together with the notification procedure.

     (3)    The provisions of—

           (a)           this and the following sections of this Chapter,

           (b)           Schedule 5, and

           (c)           Part 4 of Schedule 7D to TCGA 1992 (enterprise management

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incentives: capital gains tax consequences of exercise of qualifying

option),

            together constitute “the EMI code”.

     (4)    In the EMI code—

                    “qualifying option” means a share option—

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                  (a)                 in relation to which the requirements of Schedule 5 are met at

the time when the option is granted, and

                  (b)                 which is notified to the Inland Revenue in accordance with Part

7 of that Schedule;

                    “replacement option” means an option within paragraph 41(4) of that

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Schedule (grant of replacement option in connection with company

reorganisations);

                    “share option” means a right to acquire shares in a company;

            and any reference to the requirements of Schedule 5 is to the requirements set

out in paragraph 1(3) of that Schedule.

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     (5)    Other expressions used in the EMI code and contained in the index at the end

of Schedule 5 have the meaning indicated by the index.

Tax advantages: receipt of option

 528   No charge on receipt of qualifying option

No liability to income tax arises in respect of the receipt of a qualifying option.

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Tax advantages: exercise of option

 529   Scope of tax advantages: option must be exercised within 10 years

     (1)    Sections 530 to 540 apply in connection with the exercise of a qualifying option.

 

 

 
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