In the Autumn Statement, Chancellor of the Exchequer Philip Hammond announced that the tax advantages attached to Employee Shareholder Shares (ESS) are to be removed for new issues that take place after 1 December 2016.
Historically, shares received under an employee shareholder agreement have enjoyed significant Income Tax reliefs, as well as exemption from Capital Gains Tax. However, the decision has been taken to remove these reliefs following evidence suggesting that the tax advantages afforded to ESS are being used for tax planning purposes as opposed to encouraging more flexibility for employers in the labour market.
Individuals that have been presented with employee shareholder agreements will continue to benefit from favourable tax conditions, provided that they formally enter into those agreements before 1 December 2016. In practice this means that individuals will have to have received the necessary independent advice before 23 November. The employee shareholder status itself will be closed to new participants via future legislative changes.
The utility of the ESS and the associated tax advantages to motivate employees was subject to debate at their introduction and concern for the possibility of abuse had previously been voiced. Employers currently considering implementing the ESS should look into alternative means of share incentivisation for their workforce.