Employee Share Options as an Employment Benefit

Common among start-ups, the EMI scheme allows employees to purchase shares if they meet certain performance or tenure requirements. This scheme helps attract talent by providing the potential for investment returns in the future, even if the company can’t currently match larger firms on salary.

Technology companies frequently use EMI as it enables key employees to own shares and benefit from the company’s growth in a tax-efficient way. A company can grant up to £250,000 worth of share options over a three-year period.

With EMI, you might have the option to buy shares in the future at an agreed price, potentially much lower than their market value at purchase time. If shares were priced at £1 initially and are worth £10 when purchased, you could gain £9 per share.

If shares are bought at or above market value when the option was granted, no Income Tax or National Insurance is due. A discounted purchase will, however, incur Income Tax and National Insurance on the difference. When you sell, Capital Gains Tax (CGT) applies at a reduced rate of 10% (rather than the standard 20%) if the option has been held for at least two years.

Under a CSOP, you have the option to buy up to £60,000 worth of shares at a non-discounted, fixed price.

As long as shares are held for three years, there is no Income Tax or National Insurance on the difference between the purchase price and their value. CGT may apply when the shares are sold.

SAYE is a popular UK share scheme available to all employees, not just higher-level staff.

With SAYE, you save between £5 and £500 monthly for three to five years, deducted from your gross salary. At the end of this period, you have the option to buy shares at a pre-set price, usually up to 20% below the market rate at the time.

If share prices drop, you can opt not to buy and withdraw your savings as cash, minimising risk. If you do buy the shares, they can be held or sold immediately for a profit. Income Tax and National Insurance do not apply, though CGT may be due unless shares are transferred to a pension or ISA within 90 days.

With a SIP, employers can offer shares to employees or allow them to buy shares through gross pay deductions, holding these shares in trust until they leave the company.

Employers can give up to £3,600 worth of shares per employee annually, or employees may buy up to £1,800 worth themselves.

SIPs allow employees to acquire shares in four ways: free shares, partnership shares, matching shares, or dividend shares. Holding these shares for at least five years avoids Income Tax and National Insurance. If shares are sold immediately after this five-year period, CGT may also be avoided.

Beyond HMRC’s tax-advantaged schemes, some companies offer Employee Share Options as part of a bonus arrangement. For instance, you might receive a £20,000 share bonus, withheld for three years. When the shares are released, they are subject to Income Tax and National Insurance like a salary. If you leave the company within three years, the bonus is forfeited, encouraging loyalty.