What are the tax implications if someone is employed under an employee-shareholder agreement?
If an individual is employed under an employee-shareholder agreement, they agree to give up certain employment rights in return for shares in the employer's company, which can carry certain tax advantages.
However, on 23 November 2016, in the Autumn Statement, the Chancellor of the Exchequer announced that the income tax reliefs and capital gains tax exemption will not be available on any shares acquired in consideration of an employee-shareholder agreement entered into on or after 1 December 2016.
Where an employee-shareholder agreement was entered into before 1 December 2016, profits made by the employee shareholder on disposal of up to £50,000 worth of shares acquired under the agreement will be exempt from capital gains tax (this is subject to anti-avoidance provisions). However, there is an individual lifetime limit of £100,000 on gains eligible for this capital gains tax exemption. This limit applies to employee-shareholder agreements entered into on or after 17 March 2016.
The first £2,000 worth of shares will be exempt from income tax and national insurance contributions (again, subject to anti-avoidance provisions, and only where the employee-shareholder agreement was entered into before 1 December 2016).
The Chancellor also announced in the Autumn Statement 2016 that employee-shareholder status itself will be closed to new arrangements at the next legislative opportunity, in response to evidence that it is primarily being used for tax-planning purposes by high-earning individuals. On 20 June 2019, the Department for Business, Energy and Industrial Strategy confirmed to XpertHR that this is still the Government's intention.