Joint Share Ownership Plan (JSOP)
Under a Joint Share Ownership Plan the participant acquires shares in the employing company jointly with another shareholder. This is typically a discretionary employee benefit trust (see the factsheet).
The ownership is split between the trust and the participant such that the trust is entitled to the existing share value and the participant has the rights to any future increase in value.
Dividing share ownership
The shares are normally acquired at fair value. The trust will pay most of this sum and the participant will usually pay a much smaller amount for the future appreciation rights. If these are acquired at less than HMRC regards as fair value, the discount will be subject to income tax. However any future gains accruing to the share appreciation rights should be within the capital gains tax regime.
Reducing fair value
The initial value of the participants’ rights can be reduced by imposing a hurdle rate on returns of, say, 5% per annum, so that if the annual increase in share value is less than this, the participant receives nothing. The initial amount payable can be reduced by arranging for the rights to be acquired on deferred terms; see the factsheet.
In unquoted companies, a similar effect to a JSOP can often be achieved through the grant of rights over a “flowering share”. This is a class of share designed so that its value will increase on the achievement of specific performance conditions.