Income Tax (Earnings and Pensions) Act 2003 section 507

Charge on disposal of beneficial interest during holding period

Section 507 imposes an income tax charge when a participant in a Share Incentive Plan (SIP) disposes of their beneficial interest in free or matching shares during the holding period, in breach of the plan's rules.

• This section applies when free or matching shares leave the SIP during the holding period because the participant has assigned, charged or otherwise disposed of their beneficial interest in breach of the plan obligations
• When such a disposal occurs, the full market value of the shares at the date they leave the plan is taxed as the participant's employment income
• The tax charge falls in the tax year in which the shares cease to be subject to the plan
• This is the most punitive of the three SIP-related tax charges, as it is triggered by a participant actively breaching the restrictions on disposals during the holding period