Employee shareholders

Posted on May 1, 2017

Employee shareholders

(Updated May 2017)

A new form of employment status, ’employee shareholders’, came into existence on 1 September 2013

The basic idea behind the new concept of employee shareholder is that individuals receive at least £2,000 worth of shares in their employer (or a parent company of their employer) in return for giving up some employment rights (in particular the right to claim unfair dismissal in most cases and the right to a statutory redundancy payment).  Provided conditions are met, the grant of up to £2,000 worth of shares will not generally give rise to liability to income tax or national insurance contributions (unless the individual enters into a s.43(1) election and there is a capital gains tax exemption on the disposal of the shares provided they were worth no more than £50,000 on acquisition).

HEALTH WARNING: The tax reliefs associated with employee shareholder status will not be available in relation to shares acquired in consideration of employee shareholder agreements made on or after 1 December 2016.

In relation to shares acquired pursuant to agreements entered into on or after 1 December 2016, the taxable amount under section 226A is the actual market value of the shares.

The concept is implemented by section 31 of the Growth and Infrastructure Act 2013 introducing three new sections into the Employment Rights Act 1996 and making a number of small amendments to that Act, and related amendments to the tax legislation.

If a company and an individual are considering entering into an employee shareholder agreement they should consider the tax and employment law issues and the choices relating to shares and options

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