Employee Share
Published / Last Updated on 16/10/2012
Employee Share Option Schemes This is where employees are allowed to purchase shares from their company at an agreed date in the future, at an agreed price. These are only available if an employer chooses to offer one as part of an employee benefits and incentive package. Get advice on a suitable scheme for you or your business by contacting us.
There are two types of scheme: Approved and Unapproved . Approved Schemes:
- 1. Executive Share Option Plans - Provided you have been granted the option, you have the right to buy shares in your company at a given point in time for a specific price. You are normally free from income tax when you are given the option. The total value of shares at the time you are given an option must not exceed is £30,000 (if you already own or hold options worth more than 10% of the company's ordinary shares you cannot receive the options). The price that you buy the shares at is fixed at the time you get the option. This price cannot be lower than the market value of the shares at the time the option is granted. Any gains made on this scheme may be subject to capital gains tax.
- 2. Save as You Earn Share Option Schemes (for schemes that commenced after 30 April 1996) - You have the right to buy shares in your company at a given point in time for a specific price. The option price must not have a discount of more than 20%. You are normally free from income tax when you are given the option. Savings are normally deducted from your pay and held on deposit ready for the option date. These types of scheme have to last for either 36 months (3 year plan), 60 months (5 year plan) or 60 months and then left for two years (7 year plan). Then your option date arrives and you are able to buy the shares at the fixed price. There is also a bonus that attaches to each plan, 3 year plan = 3 monthly contributions, 5 year plan = 9 monthly contributions and 7 year plan = 18 monthly contributions. Any gains made on this scheme may be subject to capital gains tax.
- 3. Share Incentive Plan Schemes Schemes - Under these schemes, employers can issue shares to their employees up to £3,000. In addition, employees can also purchase an extra £1,500 or shares from salary before deduction of tax (effectivley tax relief). For the additional £1,500 employee purchased shares, the employee may, if they wish, match shares at two for one. With regard to dividends, the employee can also elect to have any dividends reinvested to purchase more shares. These types of scheme are generally required to run for at least 5 years to ensure that the plan is not subject to national insurance contributions, income tax or capital gains tax.
- 4. Enterprise Management Incentive Schemes - Introduced in 2000, these schemes are open to companies with assets of less than £30m. Operating in a similar way to Executive Shre Option Plans, employees may be granted options to buy shares at a particular fixed price at some point in the future. The maximum value of the option(s) granted to an employee is £100,000, with an overall option limit issued by the company of £3m. These types of scheme are not subject to national insurance contributions or income tax and unlike Executive Share Option Schemes, they are not fully liable to capital gains tax as they benefit from Capital Gains Tax Taper Relief starting at the date of the grant of the option and not at the date of exercising the option (buying the shares).
- 5. Approved Profit Sharing Schemes - These are being phased out and no new schemes are being approved by the Inland Revenue. For existing schemes, no further tax beneficial awards can be made after 31 December 2002. Likewise, no corporation tax relief is no longer available. Unapproved Schemes: There are a variety of unapproved schemes. These are common in many overseas controlled companies where the rules that are required in this country are incompatible with their schemes offered to overseas employees. They may be subject to income tax and capital gains tax depending upon circumstances. You should always check with your employers as to your own schemes position. Sell your shares now? Go to Stockbroker On Line If your options have matured and you hold shares and wish to invest them elsewhere why not visit the Share Exchange or contact us.