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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

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HM Revenue & Customs
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Schedule 2 share incentive plan (SIP): Taxation: Capital Gains Tax (CGT)

Capital Gains Tax (CGT) may be due if a participant makes a gain when disposing of their Schedule 2 SIP shares or other assets (Part 1 of Schedule 7D Taxation of Chargeable Gains Act 1992 (TCGA 1992)).

Schedule 2 Share Incentive Plans give a special CGT advantage; if the shares are kept in the Schedule 2 SIP by the participant until they are sold, CGT will not be due on any gains made (Section 515 ITEPA 2003). If however, the shares are withdrawn from the Schedule 2 SIP, held (outside of the SIP) and then sold at a later date, a capital gain may arise on the shares, which can be calculated by deducting from the sale price:

 

  • the exit value (the value of the shares on the date they were removed from the SIP), plus
  • costs in respect of the disposal of the shares (i.e. stockbrokers commission).
  •  
  • If the capital gain, including any other capital gains in that tax year, exceeds the annual CGT exemption limit, then CGT will be payable in respect of the excess over and above the CGT annual exemption limit. The amount of CGT payable will depend on the level of income the taxpayer is liable to income tax. Any capital gains chargeable to CGT should be added to any income liable to income tax and the CGT will then be chargeable at the appropriate rate.
  • If the sale price of the shares is less than the exit value (the value of shares at the date they are removed from the Schedule 2 SIP), a loss will arise for CGT purposes. This loss can be set against any capital gains arising in that same tax year and any excess can be carried forward to set-off against any capital gains arising in future years, until the loss has been fully utilised.
  • Further information regarding CGT can be found on the HMRC website at: - https://www.gov.uk/capital-gains-tax.