ETASSUM26100 - Schedule 2 Share Incentive Plan (SIP): Requirements relating to the trust and trustees of a Schedule 2 SIP: Establishment of the trust: Introduction

A Schedule 2 SIP must provide for the setting up of a trust to hold plan shares. The SIP Code sets out various requirements for this trust, and the duties and responsibilities of its trustees. This section explains the most important of them.

The trust needs to be:

  • constituted by a trust deed that complies with Part 9 of Schedule 2 (paragraph 71(3)),
  • validly constituted under the law of a part of the UK (England and Wales, Scotland or Northern Ireland), and
  • administered by trustees who are resident for tax purposes in the UK (paragraph 71).

For the body of trustees to be regarded as UK-resident, each and every trustee must be UK-resident. The trust deed must not contain any features that are neither essential nor reasonably incidental to the purpose of complying with Part 9 (paragraph 71(4)).

The HMRC specimen Trust Deed at ETASSUM28230 contains all the features that are required by the legislation. Other trust deeds are available for those companies wishing to provide for employee representation among the trustees, (Paragraph 71(5) specifically allows for the appointment of so-called “non-professional” trustees).

It is acceptable in principle for companies to incorporate the Schedule 2 SIP rules in the trust deed.

Some examples of “reasonably incidental” features are clauses dealing with:

  • resignation and replacement of trustees,
  • professional liability/indemnity of individual trustees,
  • insurance of trust assets,
  • winding up of the trust and distribution of surplus assets, and
  • the addition and removal of constituent companies.

Who should the trustees be?

The trustees must be a body that is separate from the company which establishes the Schedule 2 SIP. They can be:

  • a collection of at least two individuals,
  • a professional trust company appointed by the company, or
  • another company such as a specially created subsidiary of the company.

Individual trustees may be employees or directors of the company or of a constituent company in the case of a group plan. As trustees they must act:

  • in accordance with the trust deed and the SIP Code, and
  • in the best interests of the beneficiaries of the trust, that is, the participating employees.