As a drive to retain and incentivise staff, shareholders will often want to transfer shares to key staff members. This should not be done without forward planning as it may result in Income Tax and National Insurance charges for the transferee. The transferor will also need to consider their Capital Gains Tax position.
An Enterprise Management Incentive Scheme (EMI) is the most frequently used vehicle in this position, and we can assist in the implementation of this HMRC approved plan. When the EMI is in place, there are numerous tax benefits; including the avoidance of the Income Tax charge mentioned above and on any sale of the transferee’s shares the Capital Gain will be charged at the lower tax rate of 10%. As with any approved scheme various requirements must be met to allow entry, so what happens when the nature of your trade means that you do not qualify for entry?
We were recently faced with this set of circumstances, however we were able to advise our clients on a similar scheme the Employee Shareholder Scheme (ESS). The ESS is essentially a HMRC pre-approved plan and comes with significant tax breaks which can outweigh the benefits of an EMI plan, for example the first £100,000 received on the sale of the transferee’s shares can be tax free.
If you do not qualify for the main stream share incentives, there may be an alternative available. Share schemes are complex but the implementation of the right scheme can reap significant rewards.