Income Tax (Earnings and Pensions) Act 2003 section 497

Limitations on charges on shares ceasing to be subject to plan

Section 497 establishes the general rule that no income tax charge arises when shares leave a Share Incentive Plan (SIP), except in specific limited circumstances defined elsewhere in the legislation.

• Free or matching shares leaving the plan are generally free from income tax, with exceptions only where there is a specific charge on cessation or a disposal of beneficial interest during the holding period.
• Partnership shares leaving the plan are generally free from income tax, with an exception only where a specific charge on partnership shares ceasing to be subject to the plan applies.
• Dividend shares leaving the plan are generally free from income tax, except where the dividends become taxable as distributions from UK or non-UK resident companies under the Income Tax (Trading and Other Income) Act 2005.
• This section acts as a protective framework, confirming that the default position for all four types of SIP shares is no income tax liability on exit from the plan, with any charges being the exception rather than the rule.