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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Share Incentive Plan (SIP): trustees: CGT

The employee is treated as absolutely entitled to the shares as against the trustees from the date shares are awarded to him or in the case of dividend shares the date they are acquired on his behalf. This means that from this date the trustees are treated as bare trustees, see CG34300+. There is thus no charge on the trustees when shares cease to be subject to the plan.

There is a deemed disposal of shares by the trustees when shares are awarded or appropriated to an employee but any gain is CGT-exempt provided that this takes place within five years from the date on which the trustees acquired the shares. However, if any shares in the company are readily convertible assets, see EIM11900, this period reduces to the earlier of two years or two years from the date on which any shares in the company become readily convertible. Any market created by the trustees acquiring shares solely for the purposes of the plan does not, though, make the shares readily convertible assets.

If shares are acquired by the trustees from a person other than a company using a payment in respect of which a deduction is allowed under CTA09/S989 (previously paragraph 9 Sch4AA ICTA88), - ‘deduction for contribution to plan trust’ - the period of CGT-exemption extends to 10 years from the date of acquisition. Before these shares are awarded to employees they form a separate class of shares from other shares the trustees hold.

In deciding whether or not the time limits for exemption have been met a first-in/first-out rule applies.

Only exceptionally will the time limits not be met and a capital gains computation be required. The normal computational rules apply. However, trustees may have acquired shares other than by way of purchase or subscription and there are specific provisions dealing with some acquisitions. Thus trustees may acquire shares:

  • on forfeiture by an employee. The terms of the plan may provide for the employee to forfeit free and matching shares. If so, any of the shares that are forfeited are treated as having been disposed of by the employee and acquired by the trustees at market value on the day of forfeiture, see CG56495.
  • from an individual or trustees who claims rollover relief against the cost of replacement assets, see TCGA92/SCH7C; CG61972+.
  • from an approved profit sharing scheme, see CG56470. The acquisition is treated as giving no gain no loss to the trustees of the approved profit sharing scheme.
  • from an employee share ownership trust by a qualifying transfer within FA89/S69(3AA), see paragraph 78 Schedule 2 ITPEA03.