Income Tax (Earnings and Pensions) Act 2003 section 505

Charge on free or matching shares ceasing to be subject to plan

Section 505 sets out the income tax charge that arises when free or matching shares leave a Share Incentive Plan (SIP), with the charge varying according to how long the shares have been held in the plan.

• If shares leave the plan within 3 years, their full market value at the exit date is taxed as employment income
• If shares leave between 3 and 5 years, the lower of market value at the award date and market value at the exit date is taxed as employment income
• If shares have been held for 5 years or more, no income tax charge arises under this section
• No charge applies on forfeiture of shares, where section 498 exemptions apply, or where section 507 (disposal of beneficial interest during the holding period) applies instead