Draft Finance Bill 2013: Employee shareholder status will appeal more to senior employees, says Carol Dempsey

December 11, 2012

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The detailed tax rules surrounding the new employee shareholder status have been drafted. By way of background, this is the renamed employee owner status where employees can be given free shares in exchange for giving up some of their employment rights (such as the right to claim unfair dismissal and statutory redundancy pay). The key tax points are:

  • complete capital gains tax exemption on up to £50,000 of shares awarded
  • shares must be fully paid up and awarded for no consideration (other than giving up certain statutory employment rights)
  • the value of the shares is based on their unrestricted market value, and
  • anti-avoidance legislation prevents employees who own, or have owned in the last year, 25% or more of the voting rights of the company (either by themselves or with people connected with them) from benefitting.

The draft clauses do not contain any income tax exemption so a tax charge could still arise on acquisition, but in the Autumn Statement the Chancellor said that he was considering introducing such an exemption for the first £2,000 of shares awarded. Without such an income tax exemption, we believe that the employee shareholder status is unlikely to be attractive to junior employees. But the capital gains tax exemption may make it very attractive to those more senior employees who were planning to acquire shares anyway and are not concerned about the loss of employment rights.

Carol Dempsey is a partner in our Reward practice.