Autumn StatementNov 23 2016

The end of employee shareholder status

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Employee Shareholder Status was a scheme announced on 8 October 2012 by the then coalition government.

Individuals who adopted the status would receive at least £2,000 of shares in the company they were employed by.

These shares were income tax exempt and also, when they sold the shares, capital gains tax (CGT) exempt. There was no limit to these income tax or CGT exemptions. 

The scheme was introduced to allow companies to attract high-calibre individuals with sometimes a specific set of skills.

It was perceived that in a competitive market, shares in the company may convince the individual to have greater responsibility, improving their productivity, and going the extra mile to ensure the company did well.

This further measure is part of the government’s wider policies of sustainability and fairness in the system of tax reliefs.

There were conditions that had to be met for the individual to become an employee shareholder whether they were a new hire or an existing employee.

But were also a number of rights that the employee shareholder had to give up which were as follows:

  • Unfair dismissal rights (apart from the automatically unfair reasons, where dismissal is based on discriminatory grounds and in relation to health and safety).
  • rights to statutory redundancy pay.
  • the statutory right to request flexible working except in the two-week period after a return from parental leave.
  • certain statutory rights to request time off to train.

From 17 March 2017 the CGT exempt amount was limited to £100,000 and any gains above this limit were subject to normal CGT rates.

This limit was introduced to predominantly to prevent abuse of the scheme but also to improve equality in the tax system, by ensuring that the level of exempt capital gains from the disposal of the shares was not excessive.

Today (23 November) the government announced, as part of the Autumn Statement, that the Income Tax reliefs and CGT exemption will no longer be available.

This applied to any shares acquired in consideration of an employee shareholder agreement entered into on or after 1 December 2016.

This small window has been allowed for any individuals who have received independent advice regarding entering into an agreement before the 23 November 2016 the opportunity to do so before 1 December 2016 and still receive the Income Tax / CGT tax advantages that were known to be available at the time the individual received the advice. 

This further measure is part of the government’s wider policies of sustainability and fairness in the system of tax reliefs and, in particular, evidence suggesting that employee shareholder status was not being used as intended by companies.

Rajiv Vadgama is tax director at RSM UK