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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

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Schedule 2 share incentive plan (SIP): Supplementary and defined terms: Shares ’ceasing to be subject to the plan’

When shares cease to be subject to the plan

Plan shares cease to be subject to a Schedule 2 SIP when:

  1. they are withdrawn from the plan (see below),
  2. the participant ceases to be in relevant employment (see ETASSUM28130), or
  3. they are disposed of by the trustees to meet a PAYE obligation in accordance with  paragraph 79 (paragraph 97(1)).

Meaning and effect of “ceasing to be subject to the plan”

The phrase “cease to be subject to the plan” means that the shares are no longer Schedule 2 SIP shares. The trustee is required, therefore, to transfer the legal ownership (to the participant or someone nominated by the participant) or to sell them and account to the participant for the net proceeds of sale, in either case as soon as practicable and in accordance with any direction (general or specific) given by the participant.

Paragraph 97(4) provides that when a participant leaves relevant employment, his or her plan shares are treated as ceasing to be subject to the Schedule 2 SIP on the date of leaving.

Paragraph 97(2) and (3) contain special provisions relating to participants who leave relevant employment before an award of partnership shares is made, See ETASSUM24370.

The tax implications when shares cease to be subject to the Schedule 2 SIP depend on the circumstances (section 497) and if taxable, the length of time that they were subject to the Schedule 2 SIP (ss505-507). 

Meaning of shares being withdrawn

Plan shares are withdrawn from a Schedule 2 SIP if:

  • they are transferred to the participant or another person on the direction of the participant,
  • the participant assigns, charges or otherwise disposes of his or her beneficial interest in the shares, or
  • they are disposed of by the trustees on the direction of the participant (paragraph 96).

Throughout Schedule 2, all references to the trustees disposing of plan shares include the trustees re-acquiring the beneficial interest in such shares from the relevant participant (paragraph 79(3) for example).