Employment-Related Securities

Against a background of shares having been used by employers to reduce income tax (and NICs) on earnings, a special set of income tax charges now apply to shares acquired in connection with employment. The ability to argue that the employee acquires his shares purely in the capacity of investor has been severely curtailed. The effect is that the higher income tax rates may apply instead of capital gains tax when the shares are sold.

Securities

Because the rules catch not just shares but also other forms of "paper" issued by companies (e.g. debentures, bonds, warrants), the legislation uses the term "employment-related securities" (ERS).

Employment-related

Not only is "securities" widely defined but so are the circumstances in which they are regarded as "employment-related". First, a security is employment-related if it was acquired (as a matter of fact) because of the prospective, current or former employment of that person or some other person. Secondly, a security is deemed to be employment-related if it is made available by the employer or somebody connected with the employer regardless of whether it was acquired because of employment as a matter of fact. There is an exception to this deeming if the employer is an individual and the shares or securities are provided in the normal course of family or personal relationships.

Tax charge on acquisition

Even without the special set of income tax charges for ERS, an income charge would arise on general principles if the employer gifts shares or indeed any asset to their employer. The same applies if the employer sells the shares to the employee for a consideration that is less than their market value. This is a point that must always be considered when an employee acquires shares because it can give rise to an immediate tax charge.

Restricted securities

In practice, much of the historic tax planning relied not on gifting shares or selling them at an undervalue but using artificial restrictions to reduce the market value of the shares on...