As a business owner, regardless of the size of your business, incentivising highly-talented individuals can be a challenge. There are, however, several tax-efficient ways to remunerate and reward employees through share schemes. These can help with recruitment and retainment of staff along with motivating them. Share schemes also help with succession planning and aligning your employees’ interests with your own.
EMI share options provide employees, and the company to which they relate to, with significant tax benefits and are by far more flexible than any other tax share arrangement. There is no
income tax or national insurance contribution (NIC) payable on grant or exercise of the market value options. Up to £250,000 worth of shares can be granted to each individual, with a total limit of £3m.
Capital gains tax (CGT) will be payable on the sale of the shares unless you have held your option for two years and then you will most likely qualify for business asset disposal relief and a 10% tax rate on the first £1m of gain.
These are tax-advantaged share schemes, under which a company may grant options – the right to buy a number of shares at a fixed price – to any employee or full-time director. There are no limits on company size or number of employees, unlike an enterprise management incentive, meaning they can be used by larger organizations who would be excluded from using the EMI scheme.
Each employee can be granted up to £60,000 of options, and any gain made by the individual are only exempt from income tax if the options are held for at least three years. These options can be exercised without any income tax or NIC liability. Although capital gains tax applies, individuals can utilise their capital gains tax exemption.
Growth shares allow employees and directors to acquire equity in their company, allowing them to share in the businesses value growth. A growth share delivers value to the shareholder if the value of the company increases above a specific hurdle price.
These shares are part of the issued share capital of the company and so are governed by the company’s articles of association. While growth shares are subject to capital gains tax, these are more attractive than income tax treatment that applies to salary, benefits and other employment-related income.
Our experts work with professional advisors to design the most appropriate share incentive scheme for your business. We advise a variety of stakeholders including founders, employees and management professionals to ensure they’re able to reward and retain existing employees while aligning their goals with those of their employees.
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