20 February 2014

Employee Shareholder (ES) Status

The employee shareholder (ES) status became available on 1 September 2013. In return for sacrificing some employment rights, the chief benefit is that gains on ES shares are exempt from capital gains tax if those shares were less than £50,000 in value when first acquired by the employee. For individuals owning less than a 25% stake in a company (together with connected parties there is the potential to provide a tax-free exit on sale or winding up. Perhaps the owners should issue one share each for this purpose, and then on the next day, in consideration of the ES agreement, the company issues fully paid-up shares in the company with a value of £2,000. No consideration is given by the employee other than sacrificing their rights and the shares become a deduction for the company. This exempts 2000/2001ths of future gains, assuming that by the second day the only assets (and hence value) are the shares. There is nothing in the guidance which directly prohibits the application to a start-up company. It can apply to new recruits as well as existing employees although I do not believe the intention was ever to provide an exit strategy to business founders better than the 10% Entrepreneurs Relief. Indeed there is no trading requirement so it seems ES shares could save the 18%/28% capital gains tax for a shareholder of a non-trading company.