Share schemes in the new tax environment

Posted by admin at 15:51 on 13 Feb 2017


Now that the dust has settled, the implications for employee share schemes have become clear.

For higher earners, we are in a new environment. The top official rate of income tax is 50% and between £100,000 and £112,950 is actually 60% due to the phased withdrawal of personal allowances. Added to this are national insurance contributions, which from 6th April 2011 will be 2% for employees and 13.8% for employers.

Set against this, the highest rate of capital gains tax, now 28%, still seems attractive. This is the rate that will apply to the government sponsored options schemes such as the Enterprise Management Incentive (EMI) and Company Share Option Plan (CSOP). But even better is the rate of capital gains tax after Entrepreneur's Relief, at only 10%, especially as this applies to the first 5 million of lifetime gains.

Some share schemes, such as the Deferred Share Purchase Plan (DSPP), can potentially deliver gains at the 10% tax rate, albeit with some downside risk to the employee. Certain conditions must be satisfied, notably the requirement to hold at least 5% of the share capital for one year. However there is considerable flexibility about how the 5% rule is applied.

Under the Share Incentive Plan (SIP), share based incentives can be offered across the entire workforce and the benefits are potentially free of all taxes and national insurance contributions after five years.

For further details of these opportunities, and free advice on how they can work for you, please contact our employee share schemes team on 020 8949 5522 or email us via