| Financial Benefits to Encourage Employee Participation |
31 |
16A.6.3 Reinvestment of Cash Dividends (Dividend Shares) |
Dividends accruing on the plans shares may either by distributed in the usual (taxable) way or reinvested in ‘dividend shares’.118 There is a ceiling of £1,500 a year in any tax year.119 The shares have their own 3 year holding period.120 Once the 3 years have passed, there is no income tax charge on these shares. The share may be left in the plan or transferred as the employee wishes. If the holding period rules are broken the dividend used to pay for the shares becomes taxable.121 Certain amounts which are not reinvested may be retained by the trustees and then paid out if not used.122 |
16A.6.4 CGT Liability |
A CGT liability may accrue if the employee having had the shares transferred then sells them. No liability arises on the appropriation or on withdrawal,123 nor is there any liability on disposal of rights under a rights issue.124 Since the base cost of the shares will be the value when they are transferred to the employee little if any liability will arise if the employee sells them immediately. So long as the shares remain in the plan the employee is treated as beneficially entitled to them as against the trustee.125 Once the shares have been withdrawn by the employee—something required after 5 years anyway—they become chargeable assets and potentially liable to CGT. However the shares will be business assets for taper relief; taper relief begins when the shares are withdrawn. The shares are pooled separately.126 |