Income Tax (Trading and Other Income) Act 2005 section 770

Amounts applied by SIP trustees acquiring dividend shares or retained for reinvestment

Section 770 provides an income tax exemption for participants in Share Incentive Plans (SIPs) in respect of amounts used by plan trustees to acquire dividend shares, or amounts of cash dividends retained but not yet reinvested.

• When dividends on SIP shares are reinvested in further shares (dividend shares) by the plan trustees, the participant faces no immediate income tax on the amount used to buy those shares or on any cash dividend amount held back pending reinvestment.
• This exemption does not prevent a later income tax charge arising if the retained cash is eventually paid out to the participant, or if the dividend shares leave the plan.
• The exemption is denied entirely if a main purpose of the arrangements under which the shares are awarded or acquired is the avoidance of tax or national insurance contributions.
• The section only applies where shares have been awarded under a Schedule 2 SIP and the participant's employment income conditions set out in section 392(3) or (5) are satisfied at the time the shares are awarded.