Share schemes, tax savings, and entrepreneurs relief

Author: Inez Anderson

Categories: Employees, Features, Share Schemes, Tax Planning
Tags: employee rewards, tax relief
Inez Anderson: "The idea is you award your employee an option over shares.  You can put conditions on that that certain things have to be achieved either by the company or by the individual before they can exercise the option and own the share.  But the whole idea is that the value of a share at the day you award the option, any growth in value from then until the point in time that the individual will sell the share is going to be free of income tax and is subject to capital gains tax.  And there’s very different rates for income tax and capital gain, capital gain is much less.  But last year it was made even better than that and somebody who has been given an option under an EMI scheme, on or after 6th April 2012, as long as they’ve had that option for at least 12 months before they exercised and sell the shares, so the period from the grant of the option to the sale of the share is at least 12 months, they will be able to qualify for what’s called Entrepreneurs Relief.  And that means that their capital gains tax rate will be 10%. Now, most people can get ... will only get Entrepreneurs Relief if they’ve held the share for 12 months, not an option, held the share for 12 months and they owned 5% of the capital in the business.  That’s not the case for Entrepreneurs Relief; you don’t need the 5%."
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