Income Tax (Trading and Other Income) Act 2005 section 407

Dividend payment when dividend shares cease to be subject to SIP

Section 407 deals with the income tax consequences when dividend shares leave a Share Incentive Plan (SIP) within three years of being acquired on behalf of the participant.

• If dividend shares cease to be part of a SIP within three years of acquisition, a dividend is treated as paid to the participant for income tax purposes in the tax year the shares leave the plan
• The deemed dividend amount is the cash dividend originally used to buy the shares, to the extent it relates to dividends from non-UK resident companies
• Where shares leave the plan because they must be offered for sale under the plan rules, the deemed dividend may instead be a proportionate fraction of the shares' market value at the time of sale, if that produces a lower figure
• The participant is personally liable for any income tax arising under this section