Income Tax (Earnings and Pensions) Act 2003 Schedule 2 paragraph 20

Meaning of "material interest"

Schedule 2 paragraph 20 defines what constitutes a "material interest" in a company for the purposes of the Share Incentive Plan (SIP) rules, which is relevant because employees with a material interest in certain companies may be excluded from participating in the plan.

• An employee has a material interest if they hold, or have held within the preceding twelve months, more than 25% of the ordinary share capital of the company.
• The test looks not just at shares the individual owns directly, but also at shares held by certain associates, such as family members and connected trusts or companies.
• A material interest can arise in relation to the company whose shares are used in the SIP, or in a parent company of that company, or in a member of a consortium that owns the company.
• This rule ensures that SIP tax advantages are directed at employees without significant controlling stakes, preserving the plan's purpose of encouraging broad-based employee share ownership.