Taxes Consolidation Act 1997 section 512

Disposals of scheme shares

Section 512 sets out the income tax consequences when shares held under an approved profit sharing scheme (APSS) are disposed of before the release date, including rules for calculating the locked-in value, adjustments for rights issues, and the identification of shares disposed of from holdings appropriated at different times.

• The locked-in value of a participant's shares is their initial market value at the date of appropriation, reduced by any capital receipts on which income tax has already been charged. If shares are disposed of before the release date (or the participant's death, if earlier), the participant is charged to income tax on the appropriate percentage of the lesser of the locked-in value and the actual disposal proceeds.
• Where shares are disposed of following a rights issue for which the participant made payments to the trustees, the disposal proceeds are reduced proportionately to reflect the participant's own contribution. The reduction is based on the ratio of the market value of the shares sold to the market value of the participant's total holding at the time of disposal, and any earlier reductions are deducted from the payment figure used for subsequent disposals.
• Where shares disposed of were appropriated to the participant at different times, the first-in-first-out (FIFO) identification rule applies, so that shares appropriated earlier are treated as disposed of before shares appropriated later, for the purposes of determining the initial market value, locked-in value, and appropriate percentage for each share.
• Where a disposal is not at arm's length, where shares are transferred to the trustees before the release date, or where a beneficial interest is disposed of during the retention period, the market value of the shares at the time of disposal is substituted for the actual disposal proceeds in calculating the income tax charge.