Chapter 16 CGT and employee share schemes Flashcards
CGT and share schemes
CGT and share schemes – employees generally acquire shares in their employer company by either an award of shares in a share incentive plan or on the exercise of a share option. For CGT purposes the base cost of the shares will be the amount paid by employee for the shares plus amounts chargeable to income tax on the acquisition of the shares. The only exception is with regard to shares acquired from a share incentive plan where the base cost of the shares is equal to the market value of the shares at the date they are withdrawn from the plan. Employees generally withdraw the shares from a SIP immediately prior to sale, so no chargeable gain would arise. Gains will therefore arise on SIP shares if there is a delay between withdrawing the shares from the plan and selling them. In most cases of a tax advantaged share option, the amount chargeable to income tax on exercise will be nil.
ER on shares acquired from share schemes
Entrepreneurs’ Relief on shares acquired from share schemes – entrepreneurs’ relief is available for 2 years prior to the disposal provided the company is the individual’s personal trading company and the taxpayer was an officer or employee of the company.
A personal company is one where the shareholder owns 5% of the ordinary share capital and is able to exercise at least 5% of the voting rights. When shares are acquired on the exercise of a share option, the date of acquisition is the date that the option was exercised. Therefore, the period between the grant and exercise of the share option is not relevant when determining if the company is the individuals personal company for the 2 years prior to the disposal of shares. However, these rules are relaxed where shares are acquired from an EMI scheme, provided the option is exercised within 10 years of grant, these shares are known as relevant EMI shares. A disposal of relevant EMI shares will qualify for ER provided that:
• The option was granted at least 2 years prior to the disposal and
• For the 2 years prior to disposal, the company was a trading company and the taxpayer was an officer or employee of the company
In this case the company does not have to be the individuals personal company.
