A New Opportunity For Tax-Free Growth For Employee Shares

16 Oct 2013

Summary and implications

Since 1st September 2013, employees can be offered a new form of an employment relationship, which is of ‘employee shareholder’ by employers. Implemented by the Growth and Infrastructure Act 2013, the new employment relationship amends the Employment Rights Act 1996.

In essence, a person who has become an employee shareholder exchanges some of his/her Employment Rights in UK for shares i.e., employee shareholder shares in their business of work.

On the acquisition of these shares, limited relief from NICs (National Insurance contributions) and Income Tax will be available, and on disposal of those shares, an exemption from CGT (Capital Gains Tax) will be available. In the Finance Act 2013, these tax reliefs were introduced.

Employers looking for tax-efficient, new ways to incentivize new or existing employees including possibly senior management teams can consider if the new employee shareholder relationship can benefit their business.

Who can be an employee shareholder?

Both existing and new employees of a company can be offered the opportunity to become an employee shareholder. However, an existing employee cannot be necessitated to accept a change in their existing employment status to employee shareholder from an employee. The legislation has protections built into it to make sure that any current employee who chooses to not accept employee shareholder status is, as a result, not disadvantaged.