ESP-Software evolved from the need to make the administration of employee share plans simple and to give control of the employee share plans to companies wishing to administer their own plans.
Here, you can learn more about us.
Click here to learn more about The Share Incentive Plans Software (SIPS). And see the demonstration video.
FAQ: Is there any other tax I might have to pay?
Taper relief reduces the percentage of the gain that is chargeable to CGT according to the number of whole years you hold the shares after you take them out of the plan. The longer you hold your shares after you take them out of the plan (up to a maximum of ten whole years) the lower the effective rate of CGT you pay.
There are different rates for taper relief depending on whether the shares are business assets.
Broadly, while you are an employee of
• the company
• its subsidiary
• a qualifying joint venture company.
• your shares will be business assets. However, if you have an interest of more than 10% of the shares in a company, then the shares are only business assets if it is a trading company or the holding company of a trading group.
When you cease to be an employee then your shares become non-business assets.
The main exception is that your shares will remain business assets even when you leave the company if
• your shares are in an unlisted trading company or
• your shares are in an unlisted holding company of a trading group
Taper relief reduces the percentage of the gain that is chargeable to CGT more rapidly for business assets than for non-business assets.
The relief reduces the gain in steps,
• by 75% down to the minimum of 25% over four whole years, if the shares are business assets
• by 40% down to the minimum of 60% over ten whole years, if the shares are non-business assets.
Our leaflet CGT1 - Capital Gains Tax. An introduction - tells you more about taper relief and sets out the full taper relief table.
Example (using tax rates for the tax year 2004/05)
Jo, a basic rate taxpayer employed by a listed trading company, is awarded £3,000 worth of shares under the plan. Five years later, she takes the shares out of the plan. By this time, they are worth £12,000 (the exit value). She keeps the shares for a further four years and then sells them for £25,000. She makes no other capital gains in the tax year that she sells them.
Jo pays no CGT on the £9,000 growth in the value of the shares while they were in the plan.
The gain is the difference between the exit value (£12,000) and the sale price (£25,000) = £13,000
Jo has held her shares for four whole years after taking them out of the plan so taper relief reduces her gain by:
• 75%, if the shares are business assets
• 10%, if the shares are non-business assets.
(a) If Jo continues to work for the company until after she sells the shares, her shares are business assets
Reduced by taper £13,000 x 75% -£9,750
Tapered gain £3,250
Her annual exempt amount is £8,200 and so Jo pays no CGT.
(b) If Jo leaves the company when she takes the shares out of the plan, her shares become non-business assets.
Reduced by taper £13,000 x 10% -£1,300
Tapered gain £11,700
Her annual exempt amount is £8,200
Gain chargeable to CGT = £11,700 - £8,200 = £3, 500
Jo pays CGT at 20%, the rate for basic rate taxpayers. (This rate applies if the amount of the taxable gain does not take her income above the basic rate band.)
CGT payable = £3,500 x 20% = £700
Source: Inland Revenue
A Share Incentive Plan, provided that it is approved by the HM Revenue & Customs,
can provide tax advantages to both the employees and the company directors.
One of the obligations to get your share incentive plan approved is to invite all of your employees.
The Share Incentive Plan legislation provides for three main types of plan shares to be used. They are:
- free shares - employers can give each employee free shares worth up to £3,000
- partnership shares - employees can use up to £1,500 per year out of pre-tax and pre-National Insurance Contributions (NICs) pay to buy partnership shares
- matching shares - employers can give matching shares at a ratio of up to two matching shares for each partnership share bought by the employee
- dividend shares - employees may be allowed to use up to £1,500 of dividends from their plan shares each year to buy further shares in the company through the plan
£9,000 each year - A tax free investment as shares should be very encouraging!
All an employee needs to do is to keep the shares in the plan as long as possible (usually 5 years) to pay less tax and NICs when he finally takes them out.
Please refer to IFS ProShare's briefing on SIPs for more information.
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