Finance Act 2000 (c. 17)

(The document as of February, 2008)

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(a) to dispose of a participant's plan shares, and

(b) to deal with any right conferred in respect of any of his plan shares to be allotted other shares, securities or rights of any description,

only pursuant to a direction given by or on behalf of the participant.

This is subject to sub-paragraph (3) and to any provision made in the plan in accordance with paragraph 73 (meeting PAYE obligations).

(2) The plan may provide for participants to give such general directions, to such effect and in such terms, as are specified in the plan.

(3) The trust instrument must, in the case of a participant's plan shares that are free, matching or dividend shares, prohibit the trustees from disposing of any of those shares (whether to the participant or otherwise) at any time during the holding period, unless the participant has at that time ceased to be in relevant employment.

This is subject to--

paragraph 32 (holding period: power to authorise trustees to accept general offers etc.);

paragraph 72 (power of trustees to raise funds to subscribe for rights issue);

paragraph 73 (meeting PAYE obligations);

paragraph 121(5) (termination of plan: early removal of shares with participant's consent).

(4) The trust instrument must require the trustees to pay over to the participant as soon as practicable any money or money's worth received by them in respect of or by reference to any of his shares, other than money's worth consisting of new shares within the meaning of paragraph 115 (company reconstructions).

This is subject to--

(a) the provisions of Part VII (reinvestment of cash dividends);

(b) the trustees' obligations under paragraphs 95 and 96 (PAYE: shares ceasing to be subject to the plan and capital receipts); and

Power of trustees to raise funds to subscribe for rights issue

72 (1) The trustees may dispose of some of the rights arising under a rights issue in order to be able to obtain sufficient funds to exercise other such rights.

This power is subject to paragraph 71(1) (duty to act in accordance with participant's directions).

(2) In this paragraph references to rights arising under a rights issue are to rights conferred in respect of a participant's plan shares to be allotted, on payment, other shares or securities or rights of any description in the same company.

Meeting PAYE obligations

73 (1) The plan must make provision to ensure that, where a PAYE obligation is imposed on the trustees as a result of any of a participant's plan shares ceasing to be subject to the plan, the trustees are able to meet that obligation--

(a) by disposing of--

(i) any of those shares, or

(ii) any of the participant's remaining plan shares (if any), or

(b) by virtue of the participant paying to the trustees a sum equal to the amount required to discharge the obligation.

(2) In sub-paragraph (1) the reference to a PAYE obligation includes an obligation under paragraph 95 (PAYE: shares ceasing to be subject to the plan).

(3) In sub-paragraph (1)(a) the reference to disposing of shares includes the acquisition of the shares by the trustees for the purposes of the trust.

(4) A disposal of any of the participant's plan shares in accordance with provision made under sub-paragraph (1)(a)(ii) may give rise to a charge to tax under--

paragraph 81 (charge on free or matching shares ceasing to be subject to plan);

paragraph 86 (charge on partnership shares ceasing to be subject to plan); or

paragraph 93 (charge on dividend shares ceasing to be subject to plan).

Deemed disposal by trustees on disposal of beneficial interest

74 (1) If at any time the participant's beneficial interest in any of his shares is disposed of, the shares in question shall be treated for the purposes of this Schedule as having been disposed of at that time by the trustees for the like consideration as was obtained for the disposal of the beneficial interest.

(2) For this purpose there is no disposal of the participant's beneficial interest if and at the time when--

(a) in England and Wales or Northern Ireland, that interest becomes vested in any person on the insolvency of the participant or otherwise by operation of law, or

(b) in Scotland, that interest becomes vested in a judicial factor, in a trustee of the participant's sequestrated estate or in a trustee for the benefit of the participant's creditors.

(3) If a disposal of shares falling within this paragraph is not at arm's length, the proceeds of the disposal shall be taken for the purposes of this Schedule to be equal to the market value of the shares at the time of the disposal.

Duties of trustees in relation to tax liabilities

75 (1) The trust instrument must require the trustees--

(a) to maintain such records as may be necessary for the purposes of--

(i) their own PAYE obligations, or

(ii) the PAYE obligations of the employer company so far as they relate to the plan,

(b) where the participant becomes liable to income tax under Case V of Schedule D, Schedule E or Schedule F by reason of the occurrence of any event, to inform him of any facts relevant to determining that liability.

(2) For the purposes of this paragraph--

"employer company" has the same meaning as in paragraph 95 (PAYE: shares ceasing to be subject to the plan); and
"PAYE obligations" includes obligations conferred on the trustees by paragraphs 95 and 96 (PAYE: shares ceasing to be subject to plan and capital receipts).

Acquisition by trustees of shares from employee share ownership trust

76 (1) The trust instrument must provide that, where there is a qualifying transfer of shares to the trustees, those shares--

(a) must not be awarded to participants under the plan as partnership shares, and

(b) must be included in any award of free or matching shares made after the date of the transfer in priority to other shares available for inclusion in that award.

(2) For the purposes of this paragraph there is a qualifying transfer of shares to the trustees if relevant shares--

(a) are transferred to them by the trustees of an employee share ownership trust, and

(b) the transfer is a qualifying transfer within section 69(3AA) of the [1989 c. 26.] Finance Act 1989 (transfer of shares in, or shares purchased from money in, an employee share ownership trust immediately before 21st March 2000).

Part X Income tax

Introduction

77 (1) The provisions of this Part of this Schedule apply for income tax purposes in relation to an approved employee share ownership plan.

This is subject to sub-paragraph (2).

(2) Nothing in this Part applies to an individual if, at the time of the award in question, he is not chargeable to tax under Schedule E in respect of the employment by reference to which he meets the requirement of paragraph 14 (the employment requirement) in relation to the plan.

No charge on award of shares etc.

78 (1) Notwithstanding that the beneficial interest in the shares passes to the employee--

(a) on the award to him of free, matching or partnership shares under the plan, or

(b) on the acquisition on his behalf of dividend shares under the plan,

the value of that interest at the time of the award or acquisition is not treated as income of his chargeable to tax.

(2) An employee is not chargeable to tax under Schedule E by virtue of section 162(1) of the Taxes Act 1988 (deemed loan in case of shares acquired at an under-value) in respect of the award to him of shares under the plan.

This does not affect any charge to tax under section 162(6) of that Act (stop-loss provision).

Capital receipts in respect of participant's shares

79 (1) Where--

(a) a capital receipt is received by a participant in respect of or by reference to any of his plan shares, and

(b) the plan shares in respect of or by reference to which it is received are--

(i) free, matching or partnership shares that were awarded to the participant fewer than five years before he received the capital receipt, or

(ii) dividend shares that were acquired on his behalf fewer than three years before he received that receipt,

the participant is chargeable to income tax under Schedule E for the tax year in which the capital receipt is received by him on the amount or value of the receipt.

(2) For the purposes of this paragraph any money or money's worth is a "capital receipt" subject to the following provisions.

(3) Money or money's worth is not a capital receipt for the purposes of this paragraph 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 this Part of this Schedule), or

(b) it consists of the proceeds of disposal of the shares, or

(4) If, pursuant to a direction given by or on behalf of the participant for the purposes of paragraph 72(1), 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 that constitutes the proceeds of that disposal is not a capital receipt for the purposes of this paragraph.

The references in this sub-paragraph to rights under a rights issue are to rights, conferred in respect of a participant's plan shares, to be allotted, on payment, other shares or securities or rights of any description in the same company.

(5) This paragraph does not apply in relation to a capital receipt referable to the shares of a participant if it is received by the participant's personal representative after his death.

Exclusion of certain charges in relation to participant's shares

80 (1) There is no charge to tax on the participant under--

(a) section 140A of the [1988 c. 39.] Taxes Act 1988 (charge on conditional acquisition of shares), or

(b) section 78 of the Finance Act 1988 (charge on removal of restriction),

when any provision for forfeiture to which the shares are subject, in accordance with paragraph 65 (permitted restrictions: provision for forfeiture), is varied or removed.

(2) A participant is not chargeable to tax under Schedule E by virtue of section 78 of the Finance Act 1988 (charge on removal of restriction) if the chargeable event (within the meaning of that section) is the ending of the holding period in relation to his free, matching or dividend shares.

(3) A participant is not chargeable to tax under Schedule E by virtue of section 79 of that Act (charge on chargeable increase in value) in respect of any shares of his that are subject to the plan at the end of the period for which the chargeable increase is determined for the purposes of that section.

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

81 (1) When free or matching shares cease to be subject to the plan, income tax may be chargeable depending on the period that has elapsed between--

(a) the date on which the shares were awarded to the participant, and

(b) the date on which they cease to be subject to the plan.

(2) If the period is less than three years, the participant is chargeable to tax under Schedule E on the market value of the shares when they cease to be subject to the plan.

(3) If the period is three years or more but less than five years, the participant is chargeable to tax under Schedule E on--

(a) the market value of the shares at the date they were awarded to him, or

(b) the market value of the shares when they cease to be subject to the plan,

whichever is less.

(4) Where the participant is charged to tax under sub-paragraph (3)(a) the tax due shall be reduced by the amount or aggregate amount of any tax paid on any capital receipts within paragraph 79 in respect of those shares.

(5) There is no charge to tax under this paragraph on the forfeiture of free or matching shares.

(6) This paragraph has effect subject to--

paragraph 82 (charge to tax on disposal of beneficial interest in shares during the holding period); and

paragraph 87 (circumstances in which there is no charge to tax on shares ceasing to be subject to plan).

(7) Except as provided by this paragraph and paragraph 82 there is no charge to tax on free or matching shares ceasing to be subject to the plan.

Charge on disposal of beneficial interest during the holding period

82 (1) Where free or matching shares cease to be subject to the plan by virtue of a participant, in breach of his obligations under paragraph 31(1)(b), assigning, charging or otherwise disposing of his beneficial interest in those shares--

(a) paragraph 81 does not apply, and

(b) the participant is chargeable to income tax under Schedule E on the market value of the shares when they cease to be subject to the plan.

(2) Where the participant is charged to tax under sub-paragraph (1) the tax due shall be reduced by the amount or aggregate amount of any tax paid on any capital receipts within paragraph 79 in respect of those shares.

Partnership share money deducted before tax

83 (1) Partnership share money deducted from an employee's salary in accordance with a partnership share agreement is not regarded as income of the employee chargeable to tax under Schedule E.

(2) The deduction of partnership share money shall be disregarded for the purpose of ascertaining the amount of--

(a) the employee's remuneration for the purposes of Chapter I of Part XIV of the Taxes Act 1988 (retirement benefit schemes), or

(b) the employee's relevant earnings for the purposes of Chapter III or IV of that Part (retirement annuities or personal pension schemes).

Charge on partnership share money paid over to employee

84 (1) An individual is chargeable to income tax under Schedule E on any amount paid over to him under--

paragraph 36(4) (deductions in excess of permitted maximum amount);

paragraph 40(4)(b) or 42(5)(b) (surplus partnership share money remaining after acquisition of shares);

paragraph 42(6) (partnership share money paid over on individual leaving relevant employment);

paragraph 42(7) (partnership share money paid over where accumulation period brought to an end by event specified in plan);

paragraph 45(3) (partnership share money paid over on withdrawal from partnership share agreement); or

paragraph 46 (partnership share money paid over on withdrawal of plan approval or termination of plan).

(2) A charge to tax under sub-paragraph (1) arises at the time the amount is paid over.

Charge on cancellation payments in respect of partnership share agreement

85 An individual is chargeable to tax under Schedule E on the amount or value of any money or money's worth received by him in respect of the cancellation of a partnership share agreement entered into by him.

Charge on partnership shares ceasing to be subject to plan

86 (1) When partnership shares cease to be subject to the plan, income tax may be chargeable depending on the period that has elapsed between--

(a) the acquisition date in respect of those shares (as defined by paragraph 40(2) or, as the case may be, 42(3)), and

(b) the date on which they cease to be subject to the plan.

(2) If the period is less than three years, the employee is chargeable to income tax under Schedule E on an amount equal to the market value of the shares when they cease to be subject to the plan.

(3) If the period is three years or more but less than five years, the employee is chargeable to income tax under Schedule E on--

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

(b) the market value of the shares when they cease to be subject to the plan,

whichever is less.

(5) This paragraph has effect subject to paragraph 87 (circumstances in which there is no charge on shares ceasing to be subject to plan).

(6) Except as provided by this paragraph, there is no charge to income tax on the employee on partnership shares ceasing to be subject to the plan.

Circumstances in which there is no charge on shares ceasing to be subject to plan

87 (1) There is no charge to tax on shares ceasing to be subject to the plan on the occurrence of any of the following events.

(2) Those events are the participant ceasing to be in relevant employment--

(a) because of injury or disability;

(b) on being dismissed by reason of redundancy;

(c) by reason of a transfer to which the [S.I. 1981/1794.] Transfer of Undertakings (Protection of Employment) Regulations 1981 apply;

(d) by reason of a change of control or other circumstances ending the associated company status of the company by which he is employed;

(e) by reason of his retirement on or after he reaches retirement age; or

(f) on his death.

(3) In sub-paragraph (2)(b) "redundancy" has the same meaning as in the [1996 c. 18.] Employment Rights Act 1996 or the [SI. 1996/1919 (N.I. 16).] Employment Rights (Northern Ireland) Order 1996.

(4) In sub-paragraph (2)(e) "retirement age" means the retirement age specified in the plan, which--

(a) must be the same for men and women, and

(b) must be not less than 50.

Dividends etc. in respect of unappropriated shares

88 (1) This paragraph applies to income of the trustees consisting of dividends or other distributions in respect of shares held by them in relation to which the requirements of Part VIII are met.

(2) Income to which this paragraph applies is income to which section 686 of the Taxes Act 1988 (accumulation and discretionary trusts: special rates of tax) applies only if and when--

(a) the period applicable to the shares under the following provisions comes to an end without the shares being awarded to a participant in accordance with the plan, or

(b) if earlier, the shares are disposed of by the trustees.

(3) Subject to sub-paragraph (4), the period applicable to the shares is the period of two years beginning with the date on which the shares were acquired by the trustees.

(4) If at the time of the acquisition of the shares by the trustees none of the shares in the company in question are readily convertible assets, the period within which the shares must be awarded is--

(a) five years beginning with the date on which the shares were acquired by the trustees, or

(b) if within that period the shares in question become readily convertible assets, two years beginning with the date on which they did so,

whichever ends first.

(5) For the purposes of determining whether shares are awarded to a participant within the period applicable under the above provisions, shares acquired by the trustees at an earlier time are taken to be awarded to a participant before shares of the same class acquired by the trustees at a later time.

(6) For the purposes of this paragraph shares which are subject to provision for forfeiture are treated as acquired by the trustees if and when the forfeiture occurs.

(7) In this paragraph references to the shares being awarded include references to shares being acquired on behalf of a participant as dividend shares.

Reinvestment of cash dividend on behalf of participant

89 (1) The amount applied by the trustees in acquiring dividend shares on behalf of a participant is not treated as income of the participant for any tax purposes.

(2) The participant has no entitlement to a tax credit in respect of the amounts of dividends so applied.

(3) Sub-paragraphs (1) and (2) do not affect--

(a) any charge under paragraph 93(1) (charge on dividend shares ceasing to be subject to plan), or

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

(4) Section 234A(4) of the Taxes Act 1988 (information relating to distributions to be provided by nominee) shall not apply in relation to any amount applied by the trustees in acquiring dividend shares on behalf of a participant.

This is subject to paragraph 93(4).

Repayment of excess cash dividend

90 Section 234A(4) to (11) of the Taxes Act 1988 (information relating to distributions to be provided by nominee) shall apply in relation to the balance of any cash dividend paid over to the participant under paragraph 54(3) as if it were a payment to which subsection (4)(b) of that section applies.

Treatment of cash dividend retained for reinvestment

91 (1) An amount retained under paragraph 58(1) (amount of cash dividend not reinvested) shall not be treated as income of the participant for any tax purposes.

(2) The participant has no entitlement to a tax credit in respect of any such amount.

(3) This paragraph does not affect any charge--

(a) under paragraph 92 (treatment of cash dividend retained and then later paid out), or

(b) paragraph 93 (charge on dividend shares ceasing to be subject to plan),

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

Treatment of cash dividend retained and then later paid out

92 (1) Where a cash dividend is paid over to a participant under paragraph 58(2) (cash dividend paid over if not reinvested), the participant is chargeable to tax on that amount--

(a) under Schedule F, or

(b) to the extent that the dividend is a foreign cash dividend, under Case V of Schedule D,

for the tax year in which the dividend is paid over to him.

(2) For the purposes of determining the tax credit (if any) to which the participant is entitled under section 231 of the Taxes Act 1988 (tax credits for certain recipients of qualifying distributions), the reference in subsection (1) of that section to the tax credit fraction in force when the distribution is made shall be read as a reference to the fraction in force when the dividend is paid over to him.

(3) Section 234A(4) to (11) of the Taxes Act 1988 (information relating to distributions to be provided by nominee) shall apply in relation to an amount paid under paragraph 58(2) as if--

(a) it were a payment to which subsection (4)(b) of that section applies, and

(b) the cash dividend had been paid when the payment was paid over to the participant under paragraph 58(2).

Charge on dividend shares ceasing to be subject to plan

93 (1) If dividend shares cease to be subject to the plan before the end of the period of three years beginning with the date on which the shares were acquired on his behalf, the participant is chargeable to tax on the amount of the relevant dividend--

(a) under Schedule F, or

(b) to the extent that the amount represents a foreign cash dividend, under Case V of Schedule D,

for the tax year in which the shares cease to be subject to the plan.

For this purpose "the relevant dividend" is the cash dividend applied to acquire those shares on the participant's behalf.

(3) Where the participant is charged to tax under this paragraph the tax due shall be reduced by the amount or aggregate amount of any tax paid on any capital receipts within paragraph 79 in respect of those shares.

For this purpose "the tax due" means the amount of tax due after deduction of the tax credit determined under sub-paragraph (2).

(4) Section 234A(4) to (11) of the Taxes Act 1988 (information relating to distributions to be provided by nominee) shall apply in relation to the relevant dividend as if it were a payment to which subsection (4)(b) of that section applies.

(5) This paragraph has effect subject to paragraph 87 (circumstances in which there is no charge on shares ceasing to be subject to plan).

(6) Except as provided by this paragraph there is no charge to tax on dividend shares ceasing to be subject to the plan.

PAYE: shares ceasing to be subject to plan

94 Where as a result of shares ceasing to be subject to the plan a participant is chargeable to tax under this Part of this Schedule, subsection (3) of section 203F of the Taxes Act 1988 (PAYE: tradeable assets) shall have effect as if the reference in that subsection to the amount of income likely to be chargeable to tax under Schedule E in respect of the provision of the asset were a reference to the amount on which tax is likely to be chargeable under this Part of this Schedule by virtue of the shares ceasing to be subject to the plan.

PAYE: shares ceasing to be subject to the plan

95 (1) Sub-paragraphs (2) to (5) apply where as a result of any shares ("the relevant shares") ceasing to be subject to the plan--

(a) a participant is chargeable to income tax under Schedule E in accordance with this Part of this Schedule, and

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

(2) The trustees must pay to the employer company a sum which is sufficient to enable the employer company to discharge that obligation.

This is subject to sub-paragraphs (3) and (7).

(3) Sub-paragraph (2) only applies where, or to the extent that, the plan does not require the participant to pay the employer company a sum that is sufficient to discharge the obligation mentioned in sub-paragraph (1)(b).

(4) Section 203J(1) of the Taxes Act 1988 (sections 203B to 203I: accounting for tax) shall have effect as if it required the deduction of income tax to be made from any sum or sums received by the employer--

(a) from the trustees under sub-paragraph (2), or

(b) from the participant in accordance with the plan, as mentioned in sub-paragraph (3).

(5) After making the necessary PAYE deduction from the sum or sums received as mentioned in sub-paragraph (4), the employer company shall pay any remaining amounts to the participant.

(6) For the purposes of this paragraph "the employer company" means a company--

(a) of which the participant is an employee at the time when the relevant shares cease to be subject to the plan, and

(b) to whom the PAYE regulations (within the meaning of section 203L(3) of the Taxes Act 1988) at that time apply.

(7) Where, as a result of any shares ceasing to be subject to the plan, a participant is chargeable to income tax under Schedule E in accordance with this Part and either--

(a) there is no company which falls within sub-paragraph (6), or

(b) the Inland Revenue are of the opinion that it is impracticable for the company which falls within that sub-paragraph to make a PAYE deduction and accordingly direct that this sub-paragraph shall apply,

then sub-paragraph (2) shall not apply and the trustees shall make a PAYE deduction in respect of an amount equal to that on which income tax is payable as if the participant were a former employee of the trustees.

(8) In a case where sub-paragraph (7) applies, section 203C of the Taxes Act 1988 (PAYE: employee of non-UK employer) does not apply.

(9) Where--

(a) a participant disposes of his beneficial interest in any of his plan shares to the trustees, and

(b) the trustees are deemed by virtue of paragraph 74 to have disposed of the shares in question,

this paragraph shall apply as if the consideration payable by the trustees to the participant on the disposal had been received by the trustees as the proceeds of disposal of plan shares.

(10) For the purposes of this paragraph "PAYE deduction" means a deduction required by regulations under section 203 of the Taxes Act 1988.

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