21 July 2016
Employee Shareholder Status (ESS) growth shares continue to be of interest as a management incentive.
Despite the government reducing the tax efficiency of Employee Shareholder shares, with only the first £100,000 gain being free of capital gains tax, the use of ESS via growth shares continues to be very popular as a management incentive tool.
Companies and groups who do not qualify for Enterprise Management Incentive (EMI) share options (due to size, activities, or for other reasons) find ESS growth shares invaluable. The shares can be awarded with minimal tax cost upfront, the first £100,000 of gains are tax free and any gains above £100,000 are taxed at 20%.
We have recently advised a number of clients where EMI options are not available. For example, businesses who exceed the EMI size criteria due to assets or employees, subsidiary companies of large groups who fail the independence test and businesses whose activities are not eligible (eg. care homes).
This remains a viable option for relevant businesses and the value of the shares can be agreed with HMRC prior to the award of shares in order to provide certainty for the individuals and the company concerned.