Income Tax (Earnings and Pensions) Act 2003 section 496

No charge on cash dividend retained for reinvestment

Section 496 provides that participants in a Share Incentive Plan are not liable to income tax on cash dividends that are retained by the plan trustees for future reinvestment rather than being immediately used to buy dividend shares.

• Cash dividends received on SIP shares that are not immediately reinvested may be carried forward by the plan trustees for later reinvestment in dividend shares.
• These retained dividend amounts are exempt from income tax in the hands of the participant while they are held by the trustees pending reinvestment.
• The exemption applies specifically to amounts retained under paragraph 68(2) of Schedule 2 to ITEPA 2003, which governs the treatment of cash dividends within a Share Incentive Plan.
• The detailed provisions governing this exemption are now found in section 770 of the Income Tax (Trading and Other Income) Act 2005.