Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Trusts, Settlements and Estates Manual

From
HM Revenue & Customs
Updated
, see all updates

Trusts for particular purposes: employment-related trusts: Share Incentive Plans - taxation of trustees

The trustees are potentially subject to ITA/S479.

The trustee of a Share Incentive Plan will be chargeable at the dividend trust rate on dividends on shares that are readily convertible assets at the time they are acquired by the trustee and have not been awarded to participants within 2 years of being acquired by the trustees.

In the case of shares that are not readily convertible assets this period is extended to 5 years beginning with the date on which the shares were acquired by the trustees. (If shares become readily convertible assets within the 5 year period, the period is changed to 2 years beginning on the date on which they became readily convertible assets.)

Any additional tax at the dividend trust rate on dividends received during the period will be chargeable in the tax year when it becomes clear that they will not be awarded within the relevant period.

Income from other sources remains chargeable at the rate applicable to trusts/dividend trust rate, apart from income that is taxable on the employee, for example

  • dividends arising on shares appropriated to employees
  • interest arising on partnership share money
  • interest earned on other sums held by the trustees on behalf of employees, such as dividend shares money not reinvested

Capital gains tax

Trustees will have no capital gains tax to pay if they award shares to employees within

  • two years of acquiring them if the shares are readily convertible assets, or
  • five years of acquiring them if the shares are not readily convertible assets

If shares become readily convertible assets within the 5 year period, the period is changed to 2 years beginning on the date on which they became readily convertible assets.

Otherwise the normal capital gains tax rules will apply.