30th July 2013
Finance Act 2013 is now in force, so we can confirm a number of improvements and simplifications to UK employee share schemes.
Enterprise Management Incentive (EMI)
- Capital gains tax entrepreneurs’ relief is now available on disposals of shares acquired on exercise of EMI options from 6 April 2013, whether or not the option holder holds 5% of the shares in the company (which is the normal requirement for the relief). This is a significant improvement in the tax treatment. The period between the grant of an EMI option and the disposal of the shares must be at least twelve months if shares are to qualify for entrepreneurs’ relief, and the individual must continue to be an employee throughout that period.
- The period following a disqualifying event during which an EMI option can be exercised in a tax-favoured manner is extended from 40 days to 90 days.
Share Incentive Plan (SIP), Save As You Earn (SAYE) and Company Share Option Plan (CSOP)
Finance Act 2013 includes provisions to simplify tax-advantaged share schemes, following the review by the Office of Tax Simplification. The key changes are as follows:
- The circumstances in which tax-free exercise of SAYE and CSOP options will be available on the cash takeover of a company have been widened (see Important Note below).
- The rules in SIPs, SAYEs and CSOPs that prevent the use of shares subject to restrictions have been abolished.
These changes have the potential to make these schemes more popular and easier to establish.
Other changes are as follows:
- Retirement provisions in SIPs, SAYEs and CSOPs have been harmonised, and the requirement for schemes to include a specified retirement age has been removed. Awards and options granted before 17 July 2013 are not affected, but the changes are deemed to have automatic effect for rights granted thereafter. The amendments include a right to exercise options on “retirement”, which is not defined, although guidance on interpretation is expected in due course from HM Revenue & Customs. Companies may wish to amend and update scheme rules in order to avoid confusion in the future.
- The circumstances in which employees who leave employment will be able to benefit from tax-favoured treatment for CSOP or SAYE options, or SIP awards, have been harmonised.
- The material interest rules for SIPs and SAYE schemes have been abolished, and relaxed for CSOPs.
These changes will take effect from 17 July 2013, the date on which the Finance Bill 2013 received Royal Assent.
Important Note If companies wish to take advantage of the opportunity to allow SAYE and CSOP options to be exercised free from income tax and NIC on a cash takeover of a company, scheme rules might need to be amended. The need for an amendment is unlikely in the case of SAYE schemes since most of these already contain a “change in control” rule which reflects the relevant provision in the SAYE legislation. There is, however, no equivalent provision in the CSOP legislation so that all CSOPs operated by companies which wish to take advantage of this change must be amended. Please do not hesitate to contact us if you would like advice on dealing with these requirements.