Guidance

HS287 Employee share and security schemes and Capital Gains Tax (2015)

Updated 6 April 2017

Employee share and security schemes and Capital Gains Tax

This helpsheet deals with the following:

  • approved share incentive plans (SIPs)
  • other approved schemes
  • transfers to Individual Savings Accounts (ISAs)
  • transfers to certain pension schemes
  • Enterprise Management Incentives (EMIs)
  • unapproved share schemes
  • same day share acquisitions
  • a relief on certain disposals of unlisted shares to an approved share incentive plan

The information in this helpsheet will help you to complete the Capital gains summary pages of your tax return when you have disposed of shares you acquired because of your job, or by exercising a share option granted because you are (or were) a director or an employee. This helpsheet describes the capital gains costs of shares and other securities that are chargeable assets, that you get because of your employment after 31 August 2003.

If you acquired such shares, including shares acquired by the exercise of share options, before 31 August 2003, please refer to HMRC’s Capital Gains Manual. Some different rules applied before that date.

If you have disposed of some of your shares and kept others in the same company, you may also need Helpsheet 284 Shares and Capital Gains Tax.

For information about Income Tax and employee shares, please see SA101 Notes Additional information notes, pages AiN 6 to AiN 15, or see Employee Share Schemes User Guide. If you are in any doubt about how to calculate your gain or loss for capital gains purposes, ask us or your tax adviser.

Some employee share schemes are approved by us and others are not. The main difference is that employees do not usually pay Income Tax when they acquire shares under an approved scheme. Although EMIs are not formally approved share schemes, you will not usually pay Income Tax if you acquire shares by exercising an EMI share option.

Claims and elections – employee share schemes

If you are making any claim or election on the disposal of shares relating to an employee share scheme of any type, you must put the code ESH into box 22 (for listed shares) or box 28 (for unlisted shares) of the Capital gains summary pages. However if there are other transactions that are included in the same section of the form and more than 1 code could apply to box 22 or box 28, then you should use the code MUL. See the Capital gains summary notes for more information.

Approved share incentive plans (SIPs)

If you keep your shares in a SIP until you dispose of them, you will have no Capital Gains Tax to pay in respect of this disposal. If you keep the shares after you take them out of the plan and dispose of them later, your cost for capital gains purposes will be their market value on the date the shares leave the plan.

Approved profit-sharing scheme

For capital gains purposes:

  • the cost of your shares is their market value when the trustees of the scheme allocated them to you – the trustees will have told you what this was
  • you acquired your shares when the trustees allocated them to you (even though you could not dispose of them freely at that time)

The capital gains cost of your shares is usually what you pay for them when you exercise your option. Where exceptionally you pay Income Tax on the exercise of your option, the amount chargeable to Income Tax forms part of the cost of your shares.

Individual Savings Accounts (ISAs)

In the tax year to 5 April 2015, you could transfer shares worth up to £15,000 (£11,880 until 30 June 2014) at the date of transfer into an ISA directly from a SIP, an approved profit-sharing scheme or an SAYE scheme, providing certain conditions were met. If you transferred your shares to an ISA, no Capital Gains Tax is payable on the transfer or on the later disposal of the shares in the ISA. For general information please see ISAs.

Personal pension schemes/stakeholder pension schemes

In the tax year to 5 April 2015, you could transfer shares to some personal or stakeholder pension schemes from an SAYE scheme or a SIP, providing certain conditions were met. You dispose of the shares you transfer, so if you make a gain you may be liable to Capital Gains Tax. Usually you will make a gain on your SAYE and approved profit-sharing scheme shares because you acquire them for less than the market value at the date of the transfer to your pension scheme. If you transfer shares directly from the SIP to your pension scheme you will not be liable to Capital Gains Tax. But if you take the shares out of the plan and transfer them later, but within the 90-day limit, you may make a capital gain.

Company share option plans (CSOPs)

The capital gains cost of your shares is usually what you pay for them when you exercise your option. Where exceptionally you pay Income Tax on the exercise of your option, the amount chargeable to Income Tax forms part of the cost of your shares.

Enterprise Management Incentives (EMIs)

If you exercise your EMI option the capital gains cost of your shares is what you pay for them together with the amount charged to Income Tax, if any, on the exercise of your option.

Unapproved employee share/securities options

If you exercise an unapproved share option, the capital gains cost of your shares is the total of:

  • what you pay for the option (if anything)
  • the price you pay for the shares when you exercise the option
  • the amount chargeable to Income Tax on the exercise

If you exercise an option over securities that are chargeable assets, but not shares, the capital gains cost of your securities is the total of:

  • what you pay for the option (if anything)
  • the price you pay for the securities when you exercise the option
  • the amount chargeable to Income Tax on the exercise

All employee share/securities options

You are generally treated for capital gains purposes as acquiring your shares at the date when you exercise your option. When you exercise your option, you may agree with your employer that you will pay part or all of your employer’s National Insurance contribution if any is due. You can claim Income Tax relief for this payment. The amount on which you get Income Tax relief does not reduce the cost of your shares for capital gains purposes. If you release your employee share option in consideration of the grant of a new share option, and do not receive anything else, you will not be liable to Capital Gains Tax on receipt of the new option. You may be liable to Capital Gains Tax if you receive something else, as well as the new share option and you do not pay Income Tax on whatever else you receive. If you do not exercise an option and it lapses you do not make an allowable loss for capital gains purposes.

Unapproved employee share/securities schemes

If, because of your job, you acquire free or cheap shares or other securities outside an approved share scheme and not by exercising a share option, the capital gains cost is generally their market value at the date you acquire them.

The table below sets out the capital gains costs of some shares and other securities.

Shares or securities Acquired after 31 August 2003
Shares subject to risk of forfeiture for 5 years or less Actual cost plus amounts, if any, charged to Income Tax on acquisition, variation, removal of risk or on disposal subject to risk
Shares subject to restrictions other than risk above Actual cost plus amounts, if any, charged to Income Tax on acquisition, variation, removal of risk or on removal of risk or on disposal subject to risk
Securities other than shares subject to restrictions, that are on chargeable assets Actual cost plus amounts if any, charged to Income Tax acquisition, variation, removal of risk or on disposal subject to risk
Convertible shares Actual cost plus amounts charged to Income Tax on acquisition and conversion
Convertible securities other than shares that are chargeable assets Actual cost plus amounts charged to Income Tax on acquisition and conversion

Shares subject to restrictions on disposal

If, because of your job, you acquire shares which you cannot dispose of freely, for example, for 3 years after you receive them, these shares are treated as a separate class of shares from any other shares in the company that you hold until the restrictions are removed. So, if you hold other shares in the company and sell some of them, you will not be treated as selling the shares that you cannot dispose of freely.

Same day share acquisitions

Shares of the same class in the same company acquired on the same day are normally pooled. When you dispose of them you use the average cost per share in calculating any capital gain or loss. However, there is a rule that may help you to reduce your Capital Gains Tax liability when you dispose of shares. You may elect to divide the shares you acquire on the same day into 2 categories. One category includes all the shares you acquire by exercising a qualifying EMI option and most shares that you acquire by exercising an SAYE or CSOP option. The other category includes any SAYE or CSOP shares where you pay Income Tax when you acquire them, and all other shares of the same class in the same company that you acquire on the same day. You treat shares in this other category as disposed of first. These shares that you treat as disposed of first will generally give rise to smaller gains.

This election applies only to shares acquired on the same day. It overrides the normal rules. You will need to consider your individual circumstances to decide whether or not to elect.

Elect

You can make the election after you dispose of shares. You must make the election within 1 year and 10 months after the end of the tax year in which you first dispose of some of the shares acquired on the same day – for the year ended 5 April 2015 by 31 January 2017. The election applies to all the shares of the same class in the same company acquired on day. It applies to the first and all subsequent disposals of these shares.

How you elect

There is no special form. Explain that you are making a ‘same day acquisition’ election. Provide the:

  • date you acquired the shares
  • name of the company
  • total number, class and cost or value of shares you acquired on the same day
  • number and cost of shares you acquired in the category treated as disposed of after other shares acquired by exercising
    • a qualifying EMI option
    • a SAYE option where you paid no Income Tax
    • a CSOP option where you paid no Income Tax
  • date, number of shares disposed of and the proceeds of your first disposal of some of the shares acquired on the same day

If, before the time limit is up, you make a return showing the first disposal of shares and you want to make an election, include it in that return. Enter the information about the disposal of shares in the Capital gains summary pages. Enter ‘same day acquisition election’ in your computations next to that disposal and include any additional details in the ‘Any other information box’, box 37, on page CG 2 or in the computations. Otherwise write to us. You should make reference to the election each time you dispose of any of the remaining shares.

Relief on transfers of shares to an approved share incentive plan

This relief is designed to encourage shareholders disposing of their unlisted shares to sell them to the trustees of the company SIP for the benefit of all the employees of the company. You do not have to be an employee to claim it.

Getting relief

For details of the relief and the conditions which must be met for a claim, please see the Capital Gains Manual page.

How to claim relief

When you claim relief you must tell us about:

  • the shares you have disposed of
  • the amount you received
  • the date when you disposed of the shares
  • the name and address of the trustees of the SIP to whom you disposed of the shares
  • the replacement asset you have acquired
  • the date when you acquired it
  • its cost
  • the amount of disposal proceeds of the shares that you have used to acquire the replacement asset

Enter the information about the disposal of shares on the Capital gains summary pages. Enter ‘relief on disposal to share incentive plan’ and the amount claimed in your computations next to that disposal, and include any additional details in box 37 on page CG 2 or in the computations about the SIP and the replacement assets. The disposal of the shares should be entered on the ‘Capital gains summary’ pages but you may prefer to claim the relief at a later date.

Employee shareholder (ES) shares

Employee shareholders have different employment rights to employees generally and are awarded shares in their employer or in a parent undertaking.

If you acquire shares in consideration of an employee shareholder agreement with your employer (ES shares), any gain arising when you dispose of those shares may be exempt from Capital Gains Tax and correspondingly any loss may not be allowable.

The exemption applies only to the first £50,000 worth of ES shares you acquire in consideration of an employee shareholder agreement. If you enter into more than 1 agreement, the £50,000 limit can apply separately to each. But a single £50,000 limit applies in relation to ES shares acquired in consideration of agreements with the same company and/or with companies associated with that company.

For the purpose of applying the £50,000 limit, the value of a share (at any time) is fixed at its market value at the time you acquired it. For the same purpose, if a share is subject to restrictions, its value is fixed at what its market value would be at the time you acquired it but for the restrictions.

The exemption does not apply if, on the date you acquire the share, you or an individual connected with you has a material interest in your employer or in a parent undertaking. Neither does it apply if you, or an individual connected with you, had such an interest at any time in the previous year. You will, for example, have a material interest in a company if you can exercise at least 25% of the voting rights in the company, or if in the case of a close company, you have rights that would entitle you to receive at least 25% of the assets that would be available for distribution in the event of a winding up. You or an individual connected with you may also have a material interest by reference to voting powers or rights held by connected persons. For more information see our Capital Gains Manual.

The ordinary share pooling and matching rules see Helpsheet 284 Shares and Capital Gains Tax do not apply to ES shares that are exempt. If you hold shares of the same class in the same company and some, but not all, are exempt ES shares, then, on a disposal of less than all of the shares you hold, you may determine what proportion of the shares disposed of are exempt ES shares. You apportion the disposal consideration accordingly.

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