Schedule 4 Company Share Option Plan (CSOP): Eligibility of individuals to participate: The "no material interest" requirement: Beneficiaries of discretionary trusts
Paragraph 14 (previously paragraph 37 of Schedule 9 ICTA 1988) was enacted in 1987 to ease potential “material interest” problems for employees who are beneficiaries of discretionary trusts. Even if such an employee only has a remote chance of actually benefiting from the trust, the trustees will be his associates under Section 253 ITA 2007 (see ETASSUM42340). The interests in the shares held by the trustees must therefore be added to the employee’s own interests in shares, to work out whether he or she has a material interest under paragraph 9.
Paragraph 14 recognises that there may be discretionary trusts under which an employee who is a beneficiary may genuinely not expect to benefit (i.e. a family trust which has family members as the main beneficiaries, with the employees of the family company being named as residual beneficiaries only if all family members die). It provides that where such remote benefits are irrevocably disclaimed (see below) they do not count towards whether the individual has a material interest.
The effect of an irrevocable disclaimer made on or after 14 November 1986 is that from the date the beneficiary so ceases to be eligible to benefit under a discretionary trust, the beneficiary is not considered to be “interested in” the shares held by the trust. The trustees will not therefore be his associates for material interest purposes.
An irrevocable disclaimer cannot be made if:
- a relevant associate of the individual would still be “interested in” the shares held by the trust (i.e. as a trustee or a beneficiary) after the disclaimer had been made. A relevant associate for this purpose is a relative or partner, or a trustee of a settlement of which the individual concerned is the settler, or
- the beneficiary or any of his relevant associates had received any benefits under the trust during the previous 12 months.
An irrevocable disclaimer must be executed under seal (except in Scotland), or the trustees must irrevocably exercise any power they have to exclude the individual concerned from the objects of the trust.