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Employee loyalty, a tax windfall and a recruitment headache eased

Employers are facing growing challenges in recruiting and retaining the right calibre of staff. But share schemes have tax benefits and are a great way to encourage employees to stay put. Tony Byrne, managing director of Wealth & Tax Management, explains. 

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THERE are many types of share schemes but generally they involve granting employees shares in the employer company, or the right to acquire such shares, at a beneficial price.

If your company offers a HM Revenue & Customs-approved share scheme, there are tax advantages for both you and your employer. The main benefit of share schemes is that they incentivise employees to stick around, providing them with a tax-efficient windfall.

There are five main types of company share plans but the most common one I come across with clients is the company share option plan.  A CSOP gives you the option to buy up to £30,000 worth of shares at a fixed price. These are called Share Options.

CSOP tax advantages:

  1. No Income Tax or NIC on receiving the option;
  2. No Income Tax or NIC on exercising the option (certain conditions must be met);
  3. Capital Gains Tax on the sale of the option shares with no minimum holding period.

When you sell the shares, you have a Capital Gains Tax allowance. This means that the first £12,300 of profits are tax-free.

Any profits above this are taxable, either at a rate of 10% (basic rate) or 20% (higher rate). How much income you earn will determine if you pay the basic rate or higher rate of tax.

If you are married you could gift shares to your spouse who can then sell them and use their CGT allowance as well as you which means effectively doubling it from £12,300 to £24,600.  What’s more, gifts between spouses are CGT free. If your spouse is a non-taxpayer or a basic rate taxpayer then they will potentially only pay CGT at a rate of 10% instead of 20% on the gain in excess of their tax-free allowance.

The transfer of ownership must represent a genuine and unconditional gift for this to be effective (i.e. the funds must not be returned to the original owner after the shares are sold).

Even if you are not married, why not transfer some of your shares annually into an ISA, maximise the use of your CGT allowance and avoid future CGT on the subsequent growth in the value of your shares?

If you are interested in discussing ways to benefit from company share schemes, why not take advantage of a one-hour Discovery Meeting either at our offices or by a video conference call at our expense worth £270 to each of the first three readers who contact us before April 30 2022 You know it makes sense.  We offer a great cup of coffee too but unfortunately not a virtual one. Ring us on 01908 523740 or for free on 0800 980 4516 or email wealth@wealthandtax.co.uk.

The Financial Conduct Authority does not regulate tax advice. The contents of this article are for information purposes only and do not constitute individual advice. You should always seek professional advice from a specialist. All information is based on our current understanding of taxation, legislation and regulations in the current tax year.  Any levels and bases of relief from taxation are subject to change. This article is based on my own observations and opinions.

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