What are employee shareholder shares?
An “employee shareholder” is a type of employee status that came into force on 1 September 2013.
The basic concept is that an employee can be given shares by their employer company worth at least £2,000. In return for those shares, the employee gives up certain employment rights. There are various tax benefits for the employee including that:
- the grant of the shares will generally not give rise to income tax; and
- the growth in value of the shares will be exempt from capital gains tax provided the shares were not worth more than £50,000 when acquired.
Recent BIS statement
When first implemented, employers were required to issue brand new shares to the employee in order for those shares to qualify as “employee shareholder” shares. HMRC has published a bulletin which states that the Department for Business Innovation and Skills (BIS) has confirmed that employees can receive existing shares (i.e. shares already in issue) rather than the company having to issue new shares.
The recent HMRC statement will make it easier for companies to implement the employee shareholder arrangements as existing shares can be transferred from other shareholders, for example. BIS will no doubt publish its own guidance on the subject in due course. In particular, it will be interesting to see how the use of existing shares will satisfy the requirement to “issue or allot” shares under the Employment Rights Act.
James Partridge, Partner, Corporate & Commercial Team at Thomson Snell & Passmore LLP