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Valuable new tax reliefs for share schemes

First published in ‘The Jewish News’ 10th January 2013

By William Franklin – Chartered accountant

In these days of austerity, when HMRC and the Chancellor are concentrating on raising more tax revenue through withdrawing reliefs, increasing rates, closing loopholes and pursuing evaders, it is something of a surprise to find one area when the Chancellor is introducing significant new tax reliefs. That area is Employee Share Schemes.

Enterprise Management Incentive (“EMI”) options, which were introduced by the last Labour government, have been a popular means of tax, efficiently regarding employees of smaller companies.

However the Chancellor is now extending the Entrepreneur’s Relief so gains made through EMI options will normally be taxed at only 10 percent, providing the shares are sold after 6 April this year and the option was granted at least 12 months before the shares were sold.

Normally for Entrepreneur’s Relief, the individual has to have at least five percent of the shares and to have held shares for at least 12 months, but for shares acquired by the exercise of EMI options, these conditions are being removed.

When you consider that the alternative to EMI options might otherwise be a cash bonus, which, for a top rate taxpayer would be taxed after 6 April at 45 percent plus NICs of 2 percent and Employer NICs of 13.8 percent m it is easy to see the attraction of EMI options. Even for 20 percent and 40 percent taxpayers, EMI options are now a very attractive alternative.

If this change were not enough, civil servants are burning the midnight oil to make good on George Osborne’s promise at the Tory Conference to introduce a new scheme this year, whereby employees, in exchange for foregoing some employment rights, can receive shares in their employer on which, when sold, the gain would be completely free of tax.

There are some practical obstacles to be overcome and full details have yet to be worked out but, in the right circumstances, this scheme could be of considerable value to quite a few employers and employees. It could be worth keeping an eye on this scheme as more details emerge.

Contact William Franklin at Pett Franklin, specialist share scheme advisers, on 0121 348 7878, by email at