Income Tax (Earnings and Pensions) Act 2003 section 88

Treatment of shares acquired under rights issue

Section 88 sets out how shares acquired by SIP trustees through a rights issue are treated for tax purposes, and the conditions under which that treatment does not apply.

• When SIP trustees exercise rights issue entitlements attached to a participant's plan shares, the newly allotted shares are generally treated as plan shares identical to the original shares and as having been appropriated to the participant at the same time and in the same way.
• This favourable plan share treatment is lost if the trustees did not fund the rights issue using their specific power under paragraph 77 to raise funds for that purpose.
• The favourable treatment is also lost if the rights issue was not offered in respect of all ordinary shares in the company.
• Where either disqualifying condition is met, the new shares fall outside the plan and the usual capital gains tax share reorganisation rules do not apply to them.