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Is the employee shareholder status scheme appropriate for your business?

This is an extract from an article that was first published by Tax Journal on 17 February 2015.  Click here for the full article.  You can also see our previous updates on the employee shareholder scheme here.

Employee shareholder status (ESS) or ‘shares for rights’ as it is sometimes known, was introduced in September 2013 amidst a fair amount of controversy.  The basic premise of ESS is that in return for giving up certain employment protection rights (including the right to claim unfair dismissal, the right to redundancy pay, the right to request flexible working or undertake study or training) an employee is issued shares with a minimum value of £2,000. However, the real attraction of ESS is that shares worth up to £50,000 will benefit from a capital gains tax exemption on sale. While the government’s intention may have been for ESS to be used by small fast growing companies who wanted a more cost effective way to take on new employees, it has mainly been used as a tax efficient way of incentivising key executives and management, particularly in private equity portfolio companies.

This article looks the tax benefits, the main conditions, and how ESS can be used most effectively.



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