Income Tax (Earnings and Pensions) Act 2003 section 85A

Disqualifying events

Section 85A sets out the circumstances in which a Share Incentive Plan (SIP) loses its Schedule 2 status due to a disqualifying event, and explains the exceptions to those rules.

• A SIP loses its Schedule 2 status immediately if a disqualifying event occurs, such as a change to a company's share capital or share rights that materially affects the value of shares held in the plan trust
• It is also a disqualifying event if shares of a class held in the plan trust are treated differently from other shares of the same class, particularly regarding dividends, repayment, or offers of substituted or additional shares, securities or rights
• However, differential treatment does not count as a disqualifying event if it arises from a key feature of the plan needed to meet the Schedule's requirements, from restrictions on participants' shares, or simply because newly issued shares receive less favourable dividend treatment for a period beginning before their issue date
• The loss of Schedule 2 status does not affect the operation of the SIP tax rules in relation to shares already awarded to participants before the disqualifying event took place