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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Approved profit sharing schemes

Approved profit sharing schemes were phased out following the introduction of approved share incentive plans, see CG46490+. No application to the Board of Inland Revenue for approval of a new scheme could be made after 5 April 2001 and no shares could be appropriated to an employee under an approved scheme after 31 December 2002.

A company setting up a profit sharing scheme had to establish a trust as part of the scheme. The company paid money to the trustees with which they acquired shares. The trustees appropriated shares to eligible employees, though to get full relief from Income Tax the employee then had to leave the shares in trust for three years. (Five years up to 19 April 1996.)

The employee is treated as absolutely entitled to the shares as against the trustees of the scheme from the date of appropriation, TCGA92/S238 (1). The shares are thus deemed to have been acquired by the employee at their open market value at that date, see CG37002+.

There was no charge to Income Tax when shares were appropriated to an employee, though there may later have been a charge if, for example, shares were removed from the trust early. Any amount thus chargeable is not deductible in computing a gain or loss accruing on a disposal of the shares, TCGA92/S238 (2).

For more detail see ICTA88/S186, ICTA88/S187, ICTA88/SCH9, ICTA88/SCH10 and FA00/S49.