Income Tax (Trading and Other Income) Act 2005 section 395

Reduction in tax due in cases within section 394

Section 395 provides a mechanism to reduce the income tax charge that arises when dividend shares leave a Share Incentive Plan, where tax has already been paid on capital receipts connected with those shares.

• This section applies where a person is liable to tax under section 394 (dividend shares ceasing to be subject to a Share Incentive Plan) and has also paid tax on capital receipts relating to those same shares under ITEPA 2003
• The tax due under section 394 is reduced by the total amount of tax already paid on capital receipts in respect of the plan shares
• This prevents double taxation where income tax has already been charged on capital receipts received while the dividend shares were held within the Share Incentive Plan
• The rules for identifying which shares have ceased to be subject to a Schedule 2 Share Incentive Plan are set out in section 508 of ITEPA 2003