Autumn Statement 2016 summary - Employee Share Scheme scrapped
The Employee Shareholder Scheme (ESS) was introduced in September 2013. Its purpose was to make employees connect with the company they work for, and it was hoped, make them more productive, by giving them shares in that company. The employer was encouraged to offer shares to employees by allowing employees to surrender employment rights in return for the shares.
Under the ESS employees receive at least £2,000 worth of shares if they sign an employee shareholder agreement which explicitly removes a set of statutory employment rights, including redundancy pay. The shares are awarded free of tax and NIC, but the company can claim a tax deduction for the cost of supplying them.
When the tax payer disposes of those ESS shares the first £100,000 of gains are free of CGT. If the ESS shares were awarded under a shareholder agreement signed before 16 March 2016, the CGT exemption was restricted to £50,000 of ESS shares, as valued on acquistion. This effectively gave an unlimited CGT exemption on disposal.
The ESS has been used by equity investors to acquire shares in small companies, which they plan to sell at a significant tax-free profit, some years later. The employment rights surrendered were not important for those investors.
The Government has woken up to the fact that the ESS has not been used as intended, so it is removing the employees' tax reliefs in respect of shares awarded under employee shareholder agreements entered into on or after 1 December 2016 (or 2 December in some circumstances). The corporation tax deduction for the employer remains in place.
If you already hold ESS shares the tax reliefs associated with those shares are not removed.