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HMRC internal manual

Capital Gains Manual

From
HM Revenue & Customs
Updated
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Share Incentive Plan (SIP): employee: CGT

The employee is absolutely entitled to free, partnership, matching and dividend shares as against the trustees of the scheme from the date they are awarded or acquired on his behalf. These shares are all called plan shares and are treated as being of a different class from any other shares an employee may have that are not in the plan for capital gains tax share identification purposes. Thus, if the employee holds other shares in the company and sells some of these other shares, they will not be identified with plan shares.

Plan shares that cease to be subject to a plan are treated as having been disposed of and immediately reacquired by the employee at market value. The gain on that disposal is not a chargeable gain, see paragraph 5 TCGA92/Sch7D. As a result

  • if the employee keeps the plan shares in the plan until they are sold there will be no Capital Gains Tax to pay
  • if the employee keeps the shares after they cease to be subject to the plan and sells them later, the cost for capital gains purposes is the market value on the date the shares cease to be subject to the plan.

Shares cease to be subject to a plan,

  • when the employee withdraws them from the plan, that is

    • when the employee tells the trustees to transfer the shares to himself or to another person,
    • when an employee disposes of his beneficial interest in the shares, or
    • when the employee tells the trustees to dispose of the shares and account, or be ready to account, for the proceeds to himself or to another person.
  • when the employee ceases to be in relevant employment while the shares are subject to the plan. An employee does not cease to be in relevant employment if he remains in the employment of the company or any associated company, so employees can move around within a group without losing the benefits of the plan
  • when the trustees dispose of plan shares to meet PAYE obligations.

The terms of the plan may provide for the employee to forfeit free and matching shares. If this is the case, any of the shares that are forfeited are treated as being disposed of by the employee and acquired by the trustees at market value on the day of forfeiture. The gain on that disposal is not a chargeable gain, see paragraph 7 TCGA92/Sch7D.