Income Tax (Earnings and Pensions) Act 2003 section 508

Identification of shares ceasing to be subject to plan

Section 508 sets out how to identify which shares are treated as leaving a Share Incentive Plan (SIP) first when a participant's shares cease to be subject to the plan, for the purpose of calculating any resulting income tax liability.

• When shares leave a SIP, they are treated as leaving in the order in which they were originally awarded to the participant — a first in, first out (FIFO) basis.
• Where shares were awarded on the same day, they are treated as leaving the plan in whichever order produces the lowest income tax charge for the participant.
• For dividend shares specifically, the "award" date is the date on which the plan trustees either acquired the shares on behalf of the participant or appropriated the shares to the participant.
• All categories of SIP shares — free shares, partnership shares, matching shares and dividend shares — are pooled together for each participant, and the FIFO rule applies across all of them.