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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

HM Revenue & Customs
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Schedule 2 Share Incentive Plan (SIP): Company reconstructions: Consequences

Paragraph 87

Where a company reconstruction meets the requirements of paragraph 86 it is treated as not involving the disposal of the original plan shares and the new shares:

  • are treated as being awarded (in the case of free, partnership or matching shares) or acquired (in the case of dividend shares) on the same date that the original shares they replace were awarded or acquired,
  • are treated as eligible shares for the purposes of Part 4 of Schedule 2 ITEPA 2003 (see ETASSUM23000) even if they do not, in fact, meet all the relevant requirements, and
  •  ‘stand in the shoes’ of the old plan shares for the purposes of the tax provisions of the SIP Code.

‘New shares’ can take the form of any securities or rights of any description which form part of the new holding for the purposes of Chapter 2 of Part 4 TCGA 1992. 

A rights issue is capable of falling within the scope of the company reconstruction provisions and will do so unless paragraph 88 provides otherwise – see ETASSUM25150.

The SIP trustees must allocate a participant’s new shares to each of the award dates and types of award (free shares, partnership shares etc.) in the same proportions that the original holding was held. For this purpose, only plan shares which the new shares replaced or otherwise represent are considered. 

The trustee must deal with any fractional entitlements in accordance with the trust deed.  Unless the deed provides otherwise, the entitlements should be sold and distributed to participants according to their respective entitlements to the extent that there is any residue after deducting the costs of sale and PAYE and national insurance. Under the SIP Code these entitlements are treated as a capital receipt (see ETASSUM26150). HMRC will accept a provision of the plan which permits the SIP trustees to retain capital receipts that do not exceed £5 per participant:

  • to be used to meet general trustee expenses, or
  • to be gifted to a specified registered charity.

This is in line with the UK Listing Rules Practice in relation to such small capital sums.