Office of Public Sector Information
PART 4 continued CHAPTER 3 continued
(1) This section applies if dividend shares cease to be subject to an approved share incentive plan before the end of the period of 3 years beginning with the date on which the shares were acquired on the participant’s behalf.
(2) For income tax purposes a distribution is treated as made to the participant in the tax year in which the shares cease to be subject to the plan.
(3) The amount of the distribution treated as made is the amount of the cash dividend applied to acquire the shares on the participant’s behalf, so far as it represents a cash dividend paid in respect of plan shares in a UK resident company.
(4) The person liable for any tax charged on the distribution as a result of this section is the participant.
(5) For the purposes of determining—
(a) whether the participant is entitled to a tax credit under section 397 in respect of a distribution so charged, and
(b) if so, the amount of that tax credit,
that section applies as it has effect for the tax year in which the shares cease to be subject to the plan.
(6) But for the purposes of this Chapter, the question whether the distribution under subsection (2) is a distribution by a company that is UK resident is determined by reference to the year in which the company paid the dividend applied to acquire the shares on the participant’s behalf.
(7) For rules identifying shares ceasing to be subject to approved share incentive plans, see section 508 of ITEPA 2003.
(1) This section applies if—
(a) a person is liable to tax as a result of section 394, and
(b) any tax is paid on any capital receipts under section 501 of ITEPA 2003 (charge on capital receipts in respect of plan shares) in respect of the shares that cease to be subject to the approved share incentive plan.
(2) The tax due is to be reduced by an amount equal to the total tax so paid.
(3) In subsection (2) “the tax due” means the amount of tax due as a result of section 394 after deduction of the tax credit determined in accordance with section 394(5).
(4) For rules identifying shares ceasing to be subject to approved share incentive plans, see section 508 of ITEPA 2003.
(1) This section and sections 392 to 395 form part of the SIP code (see section 488 of ITEPA 2003 (approved share incentive plans)).
(2) Accordingly, expressions used in this section or those sections and contained in the index in paragraph 100 of Schedule 2 to that Act (approved share incentive plans) have the meaning indicated by that index.
(3) In particular—
(a) for the meaning of “award of shares” see paragraph 5(1) of that Schedule,
(b) for the meaning of “ceasing to be subject to plan” see paragraph 97 of that Schedule,
(c) for the meaning of “dividend shares” see paragraph 62(3)(b) of that Schedule,
(d) for the meaning of “employment requirement” see paragraph 15(3) of that Schedule,
(e) for the meaning of “participant” see paragraph 5(4) of that Schedule,
(f) for the meaning of “plan shares” see paragraphs 86 to 88 and 99(1) of that Schedule, and
(g) for the meaning of “shares” see paragraphs 87(6) and 99(2) of that Schedule.
(1) A UK resident or eligible non-UK resident receiving a qualifying distribution made by a UK resident company is entitled to a tax credit equal to one-ninth of the amount or value of the distribution (but see subsections (3) and (6)).
(2) Such a person may claim to deduct the tax credit from—
(a) the income tax charged on the person’s total income for the tax year in which the distribution is made, or
(b) the income tax charged on the person’s income under section 3 of ICTA (certain income charged at basic rate) for that year.
(3) Subsection (1) only applies so far as the distribution is brought into charge to tax, and accordingly if the person’s total income is reduced by any deductions which fall to be made from the distribution, the tax credit for the distribution is reduced in the same proportion as the distribution.
(4) For the purposes of this section “eligible non-UK resident”, in relation to a qualifying distribution, means an individual who at any time in the tax year in which it is received is a non-UK resident within section 278(2) of ICTA (Commonwealth citizens, EEA nationals etc.).
(5) If a distribution is, or is treated under any provision of the Tax Acts as, the income of a person (“P”) other than the recipient (“R”), P (not R) is treated as receiving it for the purposes of this section (and so P (not R) is entitled to a tax credit if P falls within subsection (1)).
(6) This section is subject to the following provisions—
section 231AA of ICTA (no tax credit for borrower under stock lending arrangement or interim holder under repurchase agreement),
section 231AB of ICTA (no tax credit for original owner under repurchase agreement in respect of certain manufactured dividends),
section 469(2A) of ICTA (no tax credit for trustees of a unit trust scheme that is neither an authorised unit trust nor an umbrella scheme), and
section 171(2B) of FA 1993 (no tax credit for distributions in respect of assets in Lloyd’s member’s premium trust fund).
(1) If a person is entitled to a tax credit in respect of a dividend or other distribution, the amount or value of the dividend or other distribution is treated as increased by the amount of the tax credit for all income tax purposes (except section 397(1)).
(2) Subsection (1) does not apply if the distribution is dealt with under Chapter 2 of Part 2 unless the trade consists of the underwriting business of a member of Lloyd's.
(1) This section applies if a person is not entitled to a tax credit for a qualifying distribution included in the person’s income for a tax year.
(2) The person is treated as having paid income tax at the dividend ordinary rate on the amount or value of the distribution (but see subsection (7)).
(3) For the purposes of subsection (2), if the person is non-UK resident the amount or value of the distribution is treated as the grossed up amount, unless the person is a company which is beneficially entitled to the income.
(4) If the person is non-UK resident and the distribution is income to which section 686 of ICTA applies (accumulation and discretionary trusts: special rates of tax), for the purposes of that section the amount or value of the distribution is treated as the grossed up amount.
(5) In this section “the grossed up amount” means the actual amount or value of the distribution, grossed up by reference to the dividend ordinary rate for the tax year.
(6) The income tax treated as paid under subsection (2) is not repayable.
(7) Subsection (2) is subject to the following provisions—
section 231AA(1A) of ICTA (which disapplies subsection (2) for borrower under stock lending arrangement or interim holder under repurchase agreement),
section 231AB(1A) of ICTA (which disapplies subsection (2) for original owner under a repurchase agreement in respect of certain manufactured dividends), and
section 469(2B) of ICTA (which disapplies subsection (2) for trustees of a unit trust scheme that is neither an authorised unit trust nor an umbrella scheme).
(1) This section applies if a person’s income in a tax year includes a non-qualifying distribution.
(2) The person is treated as having paid income tax at the dividend ordinary rate on the amount or value of the distribution.
(3) The income tax treated as paid under subsection (2) is not repayable.
(4) If the distribution is income to which section 686 of ICTA applies (accumulation and discretionary trusts: special rates of tax), the trustees' liability for income tax at the dividend trust rate on the amount or value of the whole or any part of the distribution is reduced.
(5) The amount of the reduction is equal to income tax at the dividend ordinary rate on so much of the distribution as is assessed at the dividend trust rate.
(6) In this section and section 401 “non-qualifying distribution” means a distribution which is not a qualifying distribution.
(1) Where a person pays an amount in respect of extra liability for a non-qualifying distribution, the person’s extra liability for a subsequent qualifying distribution is reduced by that amount if conditions A and B are met.
(2) Condition A is that the non-qualifying distribution consists of the issue of share capital or security.
(3) Condition B is that the qualifying distribution consists of a repayment of the share capital or the principal of the security.
(4) A person’s extra liability for a distribution charged to tax for the tax year 1999-2000 or a later tax year is the amount by which the person’s liability to income tax on the distribution exceeds the amount it would be if it were charged only at the dividend ordinary rate.
(5) A person’s extra liability for a distribution charged to tax for a tax year after the tax year 1992-93 and before the tax year 1999-2000 is the amount by which the person’s liability to income tax on the distribution exceeds the amount it would be if it were charged only at the lower rate.
(6) A person’s extra liability for a distribution charged to tax for a tax year before the tax year 1993-94 is the amount by which the person’s liability to income tax on the distribution exceeds the amount it would be if it were charged only at the basic rate.
(7) In this section “security” has the meaning given in section 254(1) of ICTA.
(1) Income tax is charged on dividends of a non-UK resident company.
(2) For exemptions, see in particular section 770 (amounts applied by SIP trustees acquiring dividend shares or retained for reinvestment).
(3) Subsection (1) is also subject to section 498 of ITEPA 2003 (no charge on shares ceasing to be subject to SIP in certain circumstances).
(4) In this Chapter “dividends” does not include dividends of a capital nature.
(1) Tax is charged under this Chapter on the full amount of the dividends arising in the tax year.
(2) Subsection (1) is subject to—
section 406(2) and (3) (later charge where cash dividends retained in SIPs are paid over),
section 407(3) (dividend payment when dividend shares cease to be subject to SIP), and
Part 8 (foreign income: special rules).
(1) The person liable for any tax charged under this Chapter is the person receiving or entitled to the dividends.
(2) Subsection (1) is subject to—
section 406(4) (later charge where cash dividends retained in SIPs are paid over), and
section 407(4) (dividend payment when dividend shares cease to be subject to SIP).
(1) Sections 406 to 408 contain special rules about the charge under this Chapter in respect of shares awarded to an individual under an approved share incentive plan.
(2) Those sections only apply if the condition in section 392(3) or (5) was met at the time the shares in question were so awarded (earnings within ITEPA 2003).
(3) This section and sections 406 to 408 form part of the SIP code (see section 488 of ITEPA 2003 (approved share incentive plans)).
(4) Accordingly, expressions used in this section or those sections and contained in the index in paragraph 100 of Schedule 2 to that Act (approved share incentive plans) have the meaning indicated by that index.
(5) In particular—
(a) for the meaning of “award of shares” see paragraph 5(1) of that Schedule,
(b) for the meaning of “ceasing to be subject to plan” see paragraph 97 of that Schedule,
(c) for the meaning of “dividend shares” see paragraph 62(3)(b) of that Schedule,
(d) for the meaning of “participant” see paragraph 5(4) of that Schedule,
(e) for the meaning of “plan shares” see paragraphs 86 to 88 and 99(1) of that Schedule, and
(f) for the meaning of “shares” see paragraphs 87(6) and 99(2) of that Schedule.
(1) This section applies if a cash dividend is paid over to a participant under paragraph 68(4) of Schedule 2 to ITEPA 2003 (cash dividend paid over if not reinvested etc.).
(2) Tax charged under this Chapter is charged for the tax year in which the cash dividend is paid over instead of the tax year in which in which it was originally paid.
(3) Tax so charged is charged on the amount of the cash dividend paid over.
(4) The person liable for any tax so charged is the participant.
(5) For the purposes of this Chapter, the question whether a cash dividend so paid over is a dividend paid by a company that is non-UK resident is determined by reference to the tax year in which the dividend was originally paid.
(1) This section applies if dividend shares cease to be subject to an approved share incentive plan before the end of the period of 3 years beginning with the date on which the shares were acquired on the participant’s behalf.
(2) For income tax purposes a dividend is treated as paid to the participant in the tax year in which the shares cease to be subject to the plan.
(3) The amount of the dividend treated as paid is the amount of the cash dividend applied to acquire the shares on the participant’s behalf, so far as it represents a cash dividend paid in respect of plan shares in a non-UK resident company.
(4) The person liable for any tax charged as a result of this section is the participant.
(5) For rules identifying shares ceasing to be subject to approved share incentive plans, see section 508 of ITEPA 2003.
(1) This section applies if—
(a) a person is liable for tax as a result of section 407, and
(b) any tax is paid on any capital receipts under section 501 of ITEPA 2003 (charge on capital receipts in respect of plan shares) in respect of the shares that cease to be subject to the approved share incentive plan.
(2) The tax due as a result of section 407 is to be reduced by an amount equal to the total tax so paid.
(3) For rules identifying shares ceasing to be subject to approved share incentive plans, see section 508 of ITEPA 2003.
(1) Income tax is charged on stock dividend income.
(2) In this Chapter “stock dividend income” means the income that is treated as arising under section 410.
(1) This section applies if share capital is issued as mentioned in section 249(1)(a) or (b) of ICTA (certain share capital issued by UK resident companies in lieu of dividends or as bonus share capital).
(2) If an individual is beneficially entitled to that share capital, income is treated as arising to the individual.
(3) If—
(a) the share capital is issued to trustees in respect of shares they hold in the company (alone or with others), and
(b) a cash dividend paid to them in respect of the shares would have been to any extent income to which section 686 of ICTA applies (accumulation and discretionary trusts: special rates of tax),
income is treated as arising to the trustees.
(4) If the share capital is issued to personal representatives during the administration period, income is treated as arising (but see section 413(4)).
(5) In subsection (4) “administration period” has the meaning given by section 653.
(6) Income within this section is treated as arising on the earliest date on which the company is required to issue the share capital in question.
(7) See section 413(5) (apportionment) if two or more persons are entitled to the share capital.
(1) Tax is charged under this Chapter on the amount of stock dividend income treated for income tax purposes as arising in the tax year.
(2) That amount is the cash equivalent of the share capital on the issue of which the stock dividend income arises (see section 412), grossed up by reference to the dividend ordinary rate for the tax year.
(1) The cash equivalent of share capital within section 249(1)(a) of ICTA (an issue in lieu of cash dividend) is the amount of the cash dividend alternative.
(2) But if the difference between the cash dividend alternative and the share capital’s market value equals or exceeds 15% of that market value—
(a) subsection (1) does not apply, and
(b) the cash equivalent of the share capital is its market value.
(3) The cash equivalent of share capital within section 249(1)(b) of ICTA (bonus share capital) is its market value.
(4) For the purposes of this section, market value is determined—
(a) in the case of listed share capital, on the date of first dealing, and
(b) in the case of other share capital, on the earliest date on which the company is required to issue it.
(5) In this section—
“listed” means listed in the Stock Exchange Daily Official List, and
“market value” has the same meaning as in sections 272(1) and (3) and 273(3) of TCGA 1992.
(1) The person liable for any tax charged under this Chapter is the person indicated by this section.
(2) If section 410(2) applies, the individual is liable for the tax.
(3) If section 410(3) applies, the trustees are liable for the tax.
(4) If section 410(4) applies, tax is not charged under this Chapter, but see—
(a) section 664 (under which the income treated as arising to the personal representatives under section 410 is treated as part of the aggregate income of the estate for the purposes of Chapter 6 of Part 5), and
(b) section 701(8) of ICTA (under which similar provision is made for the purposes of Part 16 of ICTA).
(5) If two or more persons are entitled to the share capital on the issue of which the stock dividend income arises, this Chapter applies as if the company issuing it had issued to each of those persons a proportionate part of the share capital.
(6) In subsection (5) “proportionate part” means a part proportionate to the person’s interest on the earliest date on which the company is required to issue the share capital.
(1) A person liable to tax under this Chapter is treated as having paid income tax at the dividend ordinary rate on the income charged, and where trustees are so liable (because a cash dividend paid to them in respect of the shares would have been to any extent income to which section 686 of ICTA applies) the income is treated as if it had been chargeable to tax at that rate.
(2) The income tax treated as paid under subsection (1) is not repayable.
(3) The amount on which an individual is treated under subsection (1) as having paid income tax is reduced if subsection (4) applies.
(4) This subsection applies if the individual’s total income is reduced by any deductions which fall to be made from the part of the income charged to tax under this Chapter.
(5) The reduction under subsection (3) is equal to the amount of those deductions.
(1) Income tax is charged if—
(a) a company is or has been assessed or is liable to be assessed under section 419 of ICTA (loans to participators in close companies etc.) in respect of a loan or advance, and
(b) the company releases or writes off the whole or part of the debt in respect of the loan or advance.
(2) Subsection (1) is subject to section 418 (relief where borrowers liable as settlors).
(3) Subsection (4) applies if section 419 of ICTA has effect under section 422 of that Act (extension of section 419 to loans by companies controlled by close companies) as if a loan or advance had been made by a company (“A”), rather than the company (“B”) which—
(a) actually made it,
(b) is regarded as having made it under section 419(2) of that Act (deemed loans where debt incurred or assigned to close company), or
(c) would be so regarded if it were a close company.
(4) If the whole or part of the debt is released or written off by B, for the purposes of subsection (1), A rather than B is treated as releasing it or writing it off.
(5) Expressions used in this Chapter have the same meanings as if they were in section 419 of ICTA.
(1) Tax is charged under this Chapter on the gross amount of the debt released or written off in the tax year.
(2) The “gross amount” is the amount released or written off, grossed up by reference to the dividend ordinary rate for that year.
(3) For the purposes of calculating the total income of the person liable for the tax, the amount charged is treated as income.
(4) This section is subject to section 418 (relief where borrowers liable as settlors).
(1) The person liable for any tax charged under this Chapter is the person to whom the loan or advance was made.
(2) This is subject to—
section 419 (loans and advances to persons who die), and
section 420 (loans and advances to trustees of trusts that have ended).
(1) Relief is given under this section if the person to whom the loan or advance was made—
(a) is liable for the tax year for income tax on a sum in respect of it under Chapter 5 of Part 5 as a result of section 633 (capital sums paid to settlor by trustees of settlement), or
(b) has been so liable for any previous tax year.
(2) If the total amount previously charged (see subsection (4)) equals or exceeds the total amount released (see subsection (6)), tax is not charged under this Chapter.
(3) If the total amount released exceeds the total amount previously charged, tax is charged under this Chapter on the excess, grossed up by reference to the dividend ordinary rate.
(4) In this section “the total amount previously charged” means the total of—
(a) the sums included in the person’s income under section 633 in respect of the loan or advance for the tax year or for previous tax years, and
(b) the amounts charged under this Chapter in respect of the loan or advance for previous tax years.
(5) For the purposes of subsection (4)(a), section 640(1) (which requires the grossing up of the sums treated as paid to the settlor by reference to the rate applicable to trusts) is ignored.
(6) In this section “the total amount released” means the total amount released or written off in respect of the loan or advance in the tax year and previous tax years.
(1) This section applies if—
(a) a loan or advance is made to a person who dies,
(b) a company is or has been assessed or is liable to be assessed under section 419 of ICTA (loans to participators in close companies etc.) in respect of the loan or advance, and
(c) after the death the company releases or writes off the whole or part of the debt in respect of the loan or advance.
(2) Tax is not charged under this Chapter if at the time of the release or writing off the debt is due from the person’s personal representatives in that capacity, but see—
(a) section 664 (under which the amount that would be so charged is treated as part of the aggregate income of the estate for the purposes of Chapter 6 of Part 5), and
(b) section 701(8) of ICTA (under which similar provision is made for the purposes of Part 16 of ICTA).
(3) If subsection (2) does not apply, tax is charged under this Chapter on the person from whom the debt is due at the time of release or writing off.
(1) This section applies if—
(a) a loan or advance is made to trustees of a trust,
(b) a company is or has been assessed or is liable to be assessed under section 419 of ICTA (loans to participators in close companies etc.) in respect of the loan or advance, and
(c) after the trust has ended the company releases or writes off the whole or part of the debt in respect of the loan or advance.
(2) Tax is charged under this Chapter on the person from whom the debt is due at the time of release or writing off.
(1) A person liable to income tax under this Chapter is treated as having paid income tax at the dividend ordinary rate on the amount charged under this Chapter.
(2) The income tax treated as paid under subsection (1) is not repayable.
(3) The amount on which an individual is treated under subsection (1) as having paid income tax is reduced if subsection (4) applies.
(4) This subsection applies if the individual’s total income is reduced by any deductions which fall to be made from the part of the income charged under this Chapter.
(5) The reduction is equal to the total amount of those deductions.
(1) Income tax is charged on annuity payments made under a purchased life annuity.
(2) For exemptions, see in particular—
(a) section 717 (exemption for part of purchased life annuity payments),
(b) section 725 (annual payments under immediate needs annuities),
(c) section 731 (periodical payments of personal injury damages), and
(d) section 732 (compensation awards).
Income Tax (Trading and Other Income) Act 2005