Search Legislation

Income Tax (Earnings and Pensions) Act 2003

The charges to tax

2044.Sections 500 to 508 relate to the second major topic dealt with in this Chapter: the consequential tax charges that may arise in certain circumstances.

Section 500: Operation of tax charges in connection with approved SIP

2045.As in the case of section 489, this section is introductory, being concerned with the general scope of the tax charges applying to an approved SIP. Those charges do not apply to an individual who is not chargeable to tax under Part 2 in respect of the eligible employment (as defined) (see subsection (2)).

2046.This section is the second of two that derive from paragraph 77 of Schedule 8 to FA 2000 (the other being section 489).

2047.As in the case of section 489, subsections (2) and (3) are derived from paragraph 77(2) of Schedule 8 to FA 2000. Once again the material in that sub-paragraph has been divided to make it easier to understand; and the definition of “the eligible employment” is new.

Section 501: Charge on capital receipts in respect of plan shares

2048.This section is the first of three that impose tax charges connected with the holding of shares. It imposes a charge to income tax if a capital receipt is received by a participant in respect of plan shares which have been held for less than five years (three years in the case of dividend shares). The meaning of the term “capital receipt” is dealt with in the following section.

2049.This section is the first of two that derive from paragraph 79 of Schedule 8 to FA 2000. This section derives from sub-paragraphs (1) and (5) of that paragraph, and deals with the matters directly relevant to the charge. Subsections (1) to (5) of this section are all derived from paragraph 79(1) of Schedule 8 to FA 2000, which has been divided to make it easier to understand; and subsection (6) simplifies the wording of paragraph 79(5) of Schedule 8 to FA 2000.

Section 502: Meaning of “capital receipt” in section 501

2050.This section follows on from section 501, and deals with the definition of the term “capital receipt”. The term is given a very wide definition.

2051.This section is the second of two that derive from paragraph 79 of Schedule 8 to FA 2000. This section derives from the definitional provisions in sub-paragraphs (2) to (4) of that paragraph.

2052.In order to emphasise the provision that will apply most often in practice, subsection (2) begins with the words “The general rule”.

2053.In subsection (5) the words “pursuant to a direction” have been changed to “as a result of a direction”.

Section 503: Charge on partnership share money paid over to employee

2054.This section is the second of three that impose tax charges connected with the holding of shares. The section imposes a charge to income tax if an amount is paid over to an individual under any of the provisions in Schedule 2 that are listed in this section.

2055.This section derives from paragraph 84 of Schedule 8 to FA 2000.

Section 504: Charge on cancellation payments in respect of partnership share agreement

2056.This section is the last of three that impose tax charges connected with the holding of shares. The section imposes a charge to income tax if an individual receives any money in respect of the cancellation of a partnership share agreement.

2057.This section derives from paragraph 85 of Schedule 8 to FA 2000; but the wording of this section differs very substantially from the wording of that paragraph.

2058.As in the case of other sections in this Chapter, the year that is “the relevant tax year” is specified. The point at which the tax charge arises is not specified in Schedule 8 to FA 2000; but the point has been dealt with explicitly in subsection (3). See Note 3(B) in Annex 2.

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

2059.This section is the first of three that impose tax charges connected with shares ceasing to be subject to SIPs. This section is the main charging provision for free and matching shares; and it provides for the charge to vary with the length of the period for which the shares have been held. If the shares have been held for more than five years, there is no income tax liability under this section.

2060.This section derives from sub-paragraphs (1) to (6) of paragraph 81 of Schedule 8 to FA 2000.

2061.Subsection (1) introduces two new terms, “the award date” and “the exit date”. These two terms are then deployed in subsections (2) to (5). Subsection (5), by providing that the “relevant tax year” is the tax year in which the exit date falls, has the effect that any charge to tax will arise in that year. See Note 3(B) in Annex 2.

2062.Subsection (6) combines material at present contained in sub-paragraphs (5) and (6) of paragraph 81.

Section 506: Charge on partnership shares ceasing to be subject to plan

2063.This section is the second of three that impose tax charges connected with shares ceasing to be subject to SIPs. This section is the main charging provision for partnership shares; and, as in the case of section 505, it provides for the charge to vary with the length of the period for which the shares have been held. If the shares have been held for more than five years, then once again there is no income tax liability under this section.

2064.This section derives from sub-paragraphs (1) to (5) of paragraph 86 of Schedule 8 to FA 2000.

2065.Subsection (1) introduces a new term, “the exit date”. This term is then deployed in subsections (2) to (5).

2066.As in the case of other sections in this Chapter, the year that is “the relevant tax year” is specified. The point at which the tax charge arises is not specified in Schedule 8 to FA 2000; but as there can be little doubt about the answer, the point has been dealt with explicitly in subsection (5). See Note 3(B) in Annex 2.

Section 507: Charge on disposal of beneficial interest during holding period

2067.This section is the last of three that impose tax charges connected with shares ceasing to be subject to SIPs. It applies if a participant disposes of the beneficial interest in free or matching shares during the holding period in breach of the obligations imposed by paragraph 36(1)(b) of Schedule 2 to this Act.

2068.This section derives from paragraph 82(1) of Schedule 8 to FA 2000. (Paragraph 82(2) of Schedule 8 to FA 2000 was repealed by paragraph 5 of Schedule 13 to FA 2001.) Subsection (1)(a) contains additional wording to emphasise that this section applies if free or matching shares cease to be subject to the plan during the holding period applying to those shares.

2069.As in the case of other sections in this Chapter, the year that is “the relevant tax year” is specified. As in the case of those other sections, the point at which the tax charge arises is not specified in Schedule 8 to FA 2000; the point is dealt with explicitly in subsection (3). See Note 3(B) in Annex 2.

Section 508: Identification of shares ceasing to be subject to plan

2070.This section contains provisions for identifying shares that cease to be subject to SIPs.

2071.This section derives from paragraph 122(6) of Schedule 8 to FA 2000, which is one of the supplementary provisions in Part 13 of that Schedule. It is more convenient to deal with this topic here, alongside the provisions dealing with the tax charges connected with shares ceasing to be subject to SIPs.

2072.Paragraph 122(6) of Schedule 8 is drafted in terms of shares being “awarded” to a participant; but, while it is appropriate to speak of an award of free shares, partnership shares or matching shares, it is not clear that such terminology is appropriate for dividend shares. It is, however, the intention that all shares in the trust for a particular employee should be pooled, and that shares should come out of the trust on a first in first out basis. Subsection (2) has been added to this section to deal with this point. See Change 128 in Annex 1.

Back to top

Options/Help

Print Options

Close

Explanatory Notes

Text created by the government department responsible for the subject matter of the Act to explain what the Act sets out to achieve and to make the Act accessible to readers who are not legally qualified. Explanatory Notes were introduced in 1999 and accompany all Public Acts except Appropriation, Consolidated Fund, Finance and Consolidation Acts.

Close

More Resources

Access essential accompanying documents and information for this legislation item from this tab. Dependent on the legislation item being viewed this may include:

  • the original print PDF of the as enacted version that was used for the print copy
  • lists of changes made by and/or affecting this legislation item
  • confers power and blanket amendment details
  • all formats of all associated documents
  • correction slips
  • links to related legislation and further information resources