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Income Tax (Earnings and Pensions) Bill


Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 3 — Eligibility of individuals

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          (4)      In the case of an award of partnership shares where the plan does provide

for an accumulation period, the qualifying period must be a period of not

more than 6 months ending with the start of the accumulation period

relating to the award.

          (5)      In the case of an award of matching shares where the plan does not provide

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for an accumulation period, the qualifying period must be a period of not

more than 18 months ending with the deduction of partnership share money

relating to the award of partnership shares to which the matching shares

relate.

          (6)      In the case of an award of matching shares where the plan does provide for

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an accumulation period, the qualifying period must be a period of not more

than 6 months ending with the start of the accumulation period relating to

the award of partnership shares to which the matching shares relate.

          (7)      In relation to an award, the same qualifying period must apply in relation to

all employees—

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              (a)             of the company, or

              (b)             in the case of a group plan, of the constituent companies.

          (8)      The plan may authorise the company to specify different qualifying periods

in respect of different awards of shares, but the requirements in sub-

paragraphs (2) to (7) apply to periods so specified.

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Meaning of “qualifying company”

  17      (1)      For the purposes of paragraph 15(2) “qualifying company” has the meaning

given by this paragraph.

          (2)      Except in the case of a group plan, “qualifying company” means—

              (a)             the company, or

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              (b)             a company that, when the individual was employed by it, was an

associated company—

                    (i)                   of the company, or

                    (ii)                  of another company qualifying under this paragraph.

          (3)      In the case of a group plan, “qualifying company” means—

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              (a)             a company that is a constituent company at the end of the qualifying

period mentioned in paragraph 15(2),

              (b)             a company that, when the individual was employed by it, was a

constituent company, or

              (c)             a company that, when the individual was employed by it, was an

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associated company of—

                    (i)                   a company qualifying under paragraph (a) or (b), or

                    (ii)                  another company qualifying under this paragraph.

Requirement not to participate in other SIPs

  18      (1)      The plan must provide that an individual is not eligible to participate in an

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award of free, matching or partnership shares under the plan in a tax year if

the individual—

              (a)             has in that year already participated, or

              (b)             is at the same time to participate,

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 3 — Eligibility of individuals

    365

 

                   in an award of shares under another approved SIP established by the

company or a connected company.

          (2)      For the purposes of this paragraph an individual is to be treated as having

participated in an award of free shares under a SIP if the individual would

have participated in that award but for the individual’s failure to obtain a

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performance allowance (see paragraph 34).

          (3)      In this paragraph “connected company” means—

              (a)             a company which controls or is controlled by the company or which

is controlled by a company which also controls the company, or

              (b)             a company which is a member of a consortium owning the company

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or which is owned in part by the company as a member of a

consortium.

The “no material interest” requirement

  19      (1)      The plan must provide that an individual is not eligible to participate in an

award of shares on any date if the individual has on that date, or has had

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within the 12 months ending with that date, a material interest in—

              (a)             a close company whose shares may be awarded under the plan, or

              (b)             a company which has control of such a company or is a member of a

consortium which owns such a company.

          (2)      For the purposes of this paragraph an individual is to be regarded as having

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a material interest in a company if—

              (a)             the individual,

              (b)             the individual together with one or more of the individual’s

associates, or

              (c)             any such associate, with or without any other such associates,

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                   has a material interest in the company.

          (3)      This paragraph is supplemented—

              (a)             as regards the meaning of “material interest”, by paragraphs 20 and

21, and

              (b)             as regards the meaning of “associate”, by paragraphs 22 to 24.

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Meaning of “material interest”

  20      (1)      In paragraph 19 (the “no material interest” requirement) references to a

“material interest” in a company are to—

              (a)             a material interest in the share capital of the company, or

              (b)             where it is a close company, a material interest in its assets.

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          (2)      A material interest in the share capital of a company means—

              (a)             beneficial ownership of, or

              (b)             the ability to control (directly or through the medium of other

companies or by any other indirect means),

                   more than 25% of the ordinary share capital of the company.

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          (3)      A material interest in the assets of a close company means—

              (a)             possession of, or

              (b)             an entitlement to acquire,

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 3 — Eligibility of individuals

    366

 

                   such rights as would, in the event of the winding up of the company or in

any other circumstances, give an entitlement to receive more than 25% of the

assets that would then be available for distribution among the participators.

          (4)      In this paragraph—

               “close company” includes a company that would be a close company

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but for—

                     (a)                    section 414(1)(a) of ICTA (exclusion of companies not

resident in the United Kingdom), or

                     (b)                    section 415 of ICTA (exclusion of certain quoted

companies), and

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               “participator” has the meaning given by section 417(1) of ICTA.

          (5)      This paragraph is supplemented by paragraph 21 (material interest: options

and interests in SIPs).

Material interest: options and interests in SIPs

  21      (1)      This paragraph applies for the purposes of paragraph 20 (meaning of

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“material interest”).

          (2)      A right to acquire shares (however arising) is to be treated as a right to

control them.

          (3)      Sub-paragraph (4) applies in a case where—

              (a)             the shares to be attributed to an individual consist of or include

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shares which the individual or another person has a right to acquire,

and

              (b)             the circumstances are such that, if that right were to be exercised, the

shares acquired would be shares which were previously unissued

and which the company would be contractually bound to issue in the

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event of the exercise of the right.

          (4)      In determining at any time prior to the exercise of the right whether the

number of shares to be attributed to the individual exceeds 25% of the

ordinary share capital of the company, that ordinary share capital is to be

treated as increased by the number of unissued shares referred to in sub-

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paragraph (3)(b).

          (5)      The references in sub-paragraphs (3) and (4) to the shares to be attributed to

an individual are to the shares which—

              (a)             for the purposes of paragraph 20(2) (material interest in share

capital), and

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              (b)             in accordance with paragraph 19(2) (material interest can consist of

or include that of the individual’s associates),

                   fall to be brought into account in the individual’s case so that it can be

determined whether their number exceeds 25% of the company’s ordinary

share capital.

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          (6)      In applying paragraph 20 the following are to be disregarded—

              (a)             the interest of the trustees of any approved SIP in any shares which

are held by them in accordance with the plan but which have not

been appropriated to, or acquired on behalf of, an individual, and

              (b)             any rights exercisable by the trustees as a result of that interest.

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Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 3 — Eligibility of individuals

    367

 

Meaning of “associate”

  22      (1)      In paragraph 19(2) (the “no material interest” requirement) “associate”, in

relation to an individual, means—

              (a)             any relative or partner of the individual,

              (b)             the trustee or trustees of any settlement in relation to which the

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individual, or any of the individual’s relatives (living or dead), is or

was a settlor, and

              (c)             where the individual is interested in any shares or obligations of the

company mentioned in paragraph 19(2) which are subject to any

trust, or are part of the estate of a deceased person—

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                    (i)                   the trustee or trustees of the settlement concerned, or

                    (ii)                  the personal representatives of the deceased,

                              as the case may be.

          (2)      Sub-paragraph (1)(c) needs to be read with paragraphs 23 and 24 (which

relate to employee benefit trusts and discretionary trusts).

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          (3)      In this paragraph—

               “relative” means—

                     (a)                    spouse,

                     (b)                    parent, child or remoter relation in the direct line, or

                     (c)                    brother or sister;

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               “settlor” and “settlement” have the same meaning as in Chapter 1A of

Part 15 of ICTA (see section 660G(1) and (2)).

Meaning of “associate”: trustees of employee benefit trust

  23      (1)      This paragraph applies for the purposes of paragraph 22(1)(c) (meaning of

“associate”: trustees of settlement) where an individual is interested as a

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beneficiary of an employee benefit trust in shares or obligations of the

company mentioned in paragraph 19(2).

          (2)      The trustees of the employee benefit trust are not to be regarded as associates

of the individual as a result only of the individual’s being so interested if

neither—

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              (a)             the individual, nor

              (b)             the individual together with one or more of the individual’s

associates, nor

              (c)             any such associate, with or without any other such associates,

                   has at any time after 13th March 1989 been the beneficial owner of, or able

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(directly or through the medium of other companies or by any other indirect

means) to control, more than 25% of the ordinary share capital of the

company.

          (3)      In sub-paragraph (2)(b) and (c) “associate” has the meaning given by

paragraph 22(1), but does not include the trustees of an employee benefit

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trust as a result only of the individual’s having an interest in shares or

obligations of the trust.

          (4)      Chapter 11 of Part 7 of this Act (which deals with the attribution of interests

in companies to beneficiaries of employee benefit trusts) applies for the

purposes of sub-paragraph (2).

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Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 4 — Types of shares that may be awarded

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          (5)      In this paragraph “employee benefit trust” has the same meaning as in that

Chapter (see sections 550 and 551).

Meaning of “associate”: trustees of discretionary trust

  24      (1)      This paragraph applies for the purposes of paragraph 22(1)(c) (meaning of

“associate”: trustees of settlement) where—

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              (a)             the individual (“the beneficiary”) is one of the objects of a

discretionary trust,

              (b)             the property subject to the trust has at any time consisted of, or

included, shares or obligations of the company mentioned in

paragraph 19(2),

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              (c)             the beneficiary has ceased to be eligible to benefit under the trust as

a result of—

                    (i)                   an irrevocable disclaimer or release executed by the

beneficiary, or

                    (ii)                  the irrevocable exercise by the trustees of a power to exclude

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the beneficiary from the objects of the trust,

              (d)             immediately after the beneficiary ceased to be so eligible, no

associate of the beneficiary was interested in the shares or

obligations of the company which were subject to the trust, and

              (e)             during the period of 12 months ending with the date on which the

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beneficiary ceased to be so eligible, neither the beneficiary nor any

associate of the beneficiary received any benefit under the trust.

          (2)      The beneficiary is not, as a result only of the matters mentioned in sub-

paragraph (1)(a) and (b), to be regarded as having been interested in the

shares or obligations of the company at any time during that period of 12

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months.

          (3)      In sub-paragraph (1) “associate” has the meaning given by paragraph 22(1),

but with the omission of paragraph (c) (trusts and estates).

Part 4

Types of shares that may be awarded

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Types of share that may be awarded: introduction

  25      (1)      The requirements of the following paragraphs must be met with respect to

any shares that may be awarded under a SIP—

               paragraph 26 (shares must be part of ordinary share capital of certain

companies),

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               paragraph 27 (requirement as to listing etc.),

               paragraph 28 (shares must be fully paid up and not redeemable),

               paragraph 29 (prohibited shares), and

               paragraph 30 (only certain kinds of restriction allowed).

          (2)      In this Part of this Schedule “eligible shares” means shares that may be

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awarded under the plan.

Shares must be part of ordinary share capital of certain companies

  26       Eligible shares must form part of the ordinary share capital of—

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 4 — Types of shares that may be awarded

    369

 

              (a)             the company,

              (b)             a company which has control of the company, or

              (c)             a company which either is, or has control of, a company which is a

member of a consortium owning either the company or a company

having control of the company.

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Requirement as to listing etc.

  27      (1)      Eligible shares must be—

              (a)             shares of a class listed on a recognised stock exchange,

              (b)             shares in a company which is not under the control of another

company, or

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              (c)             shares in a company which is under the control of a listed company.

          (2)      A “listed company” is a company whose shares are listed on a recognised

stock exchange, other than—

              (a)             a close company, or

              (b)             a company that would be a close company if resident in the United

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Kingdom.

Shares must be fully paid up and not redeemable

  28      (1)      Eligible shares must be—

              (a)             fully paid up, and

              (b)             not redeemable

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          (2)      For the purposes of sub-paragraph (1)(a) shares are not to be regarded as

fully paid up if there is an undertaking to pay cash at a future date to the

company whose shares they are.

          (3)      For the purposes of sub-paragraph (1)(b) “redeemable” shares include

shares that may become redeemable at a future date.

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          (4)      Sub-paragraph (1)(b) does not apply to shares in a registered industrial and

provident society which is a co-operative society.

          (5)      In sub-paragraph (4)—

               “registered industrial and provident society” means a society

registered or deemed to be registered under the Industrial and

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Provident Societies Act 1965 (c. 12) or the Industrial and Provident

Societies Act (Northern Ireland) 1969 (c. 24 (N.I.)), and

               “co-operative society” has the same meaning as in section 1 of the 1965

Act or, as the case may be, the 1969 Act.

Prohibited shares

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  29      (1)      Eligible shares must not be shares in—

              (a)             a service company, or

              (b)             a company that—

                    (i)                   has control of a service company, and

                    (ii)                  is under the control of a person or persons who fall within

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sub-paragraph (2)(b)(i) or (ii) as it applies to a service

company.

          (2)      For the purposes of this paragraph a company is a “service company” if—

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 4 — Types of shares that may be awarded

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              (a)             the business carried on by it consists substantially in the provision of

the services of persons employed by it, and

              (b)             the majority of those services are provided to—

                    (i)                   a person who has control of the company,

                    (ii)                  two or more persons who together have control of the

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company, or

                    (iii)                 a company associated with the company.

          (3)      For the purposes of sub-paragraph (2)(b)(iii) a company is associated with

another company if both companies are under the control of the same person

or persons.

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          (4)      For the purposes of sub-paragraphs (1) to (3)—

              (a)             a partnership is to be treated as a single person; and

              (b)             where a partner (alone or together with others) has control of a

company, the partnership is to be treated as having (in the same way)

control of that company.

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          (5)      For the purposes of this paragraph the question whether a person controls a

company is to be determined in accordance with section 416(2) to (6) of

ICTA.

Only certain kinds of restriction allowed

  30      (1)      Eligible shares must not be subject to any restrictions other than—

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              (a)             those affecting all ordinary shares in the company,

              (b)             those permitted by—

                    (i)                   paragraph 31 (voting rights),

                    (ii)                  paragraph 32 (provision for forfeiture), or

                    (iii)                 paragraph 33 (pre-emption conditions), or

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              (c)             those involved in there being a holding period (see paragraphs 36, 61

and 67).

          (2)      For the purposes of this paragraph shares are subject to a restriction if there

is any contract, agreement, arrangement or condition—

              (a)             by which a person’s freedom to dispose of the shares or of any

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interest in them or of the proceeds of their sale or to exercise any right

conferred by them is restricted, or

              (b)             by which such a disposal or exercise may result in any disadvantage

to the person or to a person connected with the person.

                   This is subject to sub-paragraphs (3) and (4).

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          (3)      Sub-paragraph (2) does not extend to so much of any contract, agreement,

arrangement or condition as contains provisions similar in purpose and

effect to any of the provisions of the Model Code as (for the time being) set

out in the listing rules issued by the competent authority for listing in the

United Kingdom under section 74(4) of the Financial Services and Markets

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Act 2000 (c. 8).

          (4)      Any discretion of the directors under the articles of association of the

company to refuse to accept the transfer of shares is to be disregarded for the

purposes of this paragraph if the directors—

              (a)             have undertaken to the Inland Revenue not to exercise it in such a

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way as to discriminate against participants, and

 

 

 
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