Policy paper

Technical note: Tax implications for companies and employees in relation to employees trading their shares on PISCES

Published 26 March 2025

Introduction

Private Intermittent Securities and Capital Exchange System (PISCES) is a new type of secondary trading platform that will allow for the intermittent trading of private company shares.

The regulatory framework for PISCES will be developed using a financial markets infrastructure (FMI) sandbox, as established under the Financial Services and Markets Act 2023 (FSMA 2023). FMI sandboxes enable the government to temporarily modify or not apply certain legislation, to support market operators to trial new or developing FMI technology or practices.

The Treasury intends to lay a statutory instrument before Parliament in May 2025, which will provide the legal framework for the PISCES Sandbox. Once the legislation has been laid, the Financial Conduct Authority will publish its rules, and the PISCES Sandbox will be established.

A consultation was published in March 2024 and summary of responses was published in November 2024.

This technical note provides guidance regarding how PISCES trading events will interact with 2 tax advantaged share schemes (Enterprise Management Incentives and Company Share Option Plan) and sets out the tax implications for employees selling their shares on PISCES.

If there are any questions regarding this document, please email HMRC.

Employment related securities

Employment related securities (ERS) are securities, such as shares, that are acquired by reason of employment.

A company will often award ERS using a share scheme. The scheme will be set up to award shares directly to employees or to grant options for employees to purchase shares. Where the terms of any option agreement, any shareholders’ agreement and the company’s articles of association permit, an employee might wish to acquire shares in order to sell them via a PISCES platform.

A gain arising from an acquisition of shares by an employee is employment income and chargeable to Income Tax and, where the shares are readily convertible assets (RCAs), Class 1 National Insurance contributions (NICs).

Tax relief will be available for shares acquired under a tax advantaged share scheme, provided that the conditions of the scheme and any option agreement are met.

Readily convertible assets

Where employees acquire shares which are RCAs, the employer is required to operate PAYE in respect of any Income Tax and NICs due. Where shares acquired are not RCAs, the employee is required to report the acquisition and pay any Income Tax due by submitting a self-assessment tax return.

Shares are RCAs if they are listed on a stock exchange or if, at the time the shares are acquired, other trading arrangements exist. Shares are also RCAs if such trading arrangements are likely to come into existence in accordance with an understanding or arrangement in place at the time the shares are acquired.

If at the time of an acquisition of shares by an employee, arrangements exist for the shares to be traded on a PISCES platform, they will be viewed as RCAs. This will be the case even if a trading window is not open at the time of award.

Shares acquired in anticipation of the company being admitted to PISCES (even if admission is not guaranteed) will also be viewed as RCAs, because there is an understanding at the time of award that trading arrangements are likely to come into existence afterwards.

If a company’s shares have been admitted on a PISCES platform in the past but are not admitted at the time of an acquisition, then provided that no other trading arrangements exist and no trading arrangements are likely to come into existence, the shares would not be RCAs. Trading arrangements would be considered as likely to come into existence, if the company has taken steps to prepare for a subsequent PISCES trading event.

Enterprise Management Incentives  

The Enterprise Management Incentives (EMI) scheme is a tax advantaged employee share option scheme that allows small and medium sized companies in the UK to offer their employees options to acquire shares at a future date at a price agreed at the time the option is granted.

Provided the conditions of the scheme and option agreement are met, there will be no Income Tax and no NIC charges when the options are exercised, unless the agreed exercise price is less than the market value of the shares on the date the option was granted.

Provided EMI options are granted for commercial purposes to recruit and retain employees, it will be acceptable for a PISCES trading window to be a specified event to allow employees to exercise their options. It must be clear in the option agreement, from the time the option is granted, that a PISCES trading window is a specified event that will allow the options to be exercised.

Existing option agreements cannot be amended to include a PISCES trading window as a specified event. Such an amendment would be a change to a fundamental term of the option, as it would alter when that option can be exercised. Consequently, this would result in the release and regrant of the option.

Some EMI option agreements contain discretion clauses. A discretion clause cannot be used to allow options to be exercised on a PISCES trading window and retain the tax advantages. To be a specified event to allow the exercise of options and retain the tax advantages, a PISCES trading window must be explicitly written into an option agreement from the time the options are granted.

The government will continue to consider the case for legislating to allow existing EMI contracts to be exercised on PISCES.

Further guidance on EMI can be found on GOV.UK at Tax and Employee Share Schemes and at Employee tax-advantaged share scheme user manual.

Company Share Option Plan

The Company Share Option Plan (CSOP) is a tax advantaged share scheme that allows all companies in the UK to offer share options to their employees.

To qualify for the tax advantages, CSOP options are exercisable on the third anniversary of the date of the grant, with some exceptions. The terms of the option must be clear regarding the times at which the option may be exercised.

Subject to the requirement to hold options for 3 years from grant, a PISCES trading window can be a specified event to allow employees to exercise their options. Where such a term is agreed, it must be clear from the time the option is granted.

Existing option agreements cannot be amended to include a PISCES trading window as a specified event to allow the exercise of options. Such a change would be a release and re-grant of the option.

A discretion clause cannot be used to allow options to be exercised on a PISCES trading window and retain the tax advantages. To be a specified event to allow the exercise of options and retain the tax advantages, a PISCES trading window must be explicitly written into an option agreement from the time the options are granted.

The government will continue to consider the case for legislating to allow existing CSOP contracts to be exercised on PISCES.

Further guidance on CSOP can be found on GOV.UK at Tax and Employee Share Schemes and at Employee tax advantaged share scheme user manual.

Capital Gains Tax   

Capital Gains Tax (CGT) is chargeable on the gains made from the disposal of shares.

The cost of acquiring the shares is not subject to CGT. The ‘gain’ is the profit made on the sale of the shares that have increased in value. Any amounts that were charged as employment income are not chargeable to CGT.

Further guidance can be found at: Tax when you sell shares and Reporting the gain on your shares.

Valuing shares

Transactions on PISCES

When considering transactions that have occurred through a PISCES event, HMRC would not seek to disturb the price between the buyer and seller, as this is likely to be at arm’s length and therefore the transaction would be deemed to have taken place at market value. So, where employees are involved, they can rely upon the transaction price.

If a transaction occurs between connected parties, there may be incentives for the transaction to occur at a higher or lower price than market value. HMRC may review the transaction, through a compliance check, after it has occurred and consider whether the price reflects market value.

Relevance of past PISCES Transactions to other events

Past transactions would be considered as evidence of value and may represent market value. A market value assessment would be appropriate depending on the elapsed time of the transaction and the present circumstances of the company. For example, if you are reviewing a transaction 6 months after the event and the past performance of the company in the last 6 months has seen substantial growth, you may consider that that price would have increased during that period. Equally, if performance has suffered significantly then there may be a case for reducing the value.

Grant of share options

HMRC considers that  normal principles of share valuation will apply in the context of the grant of EMI and CSOP options. In applying the principles, it is not relevant to take into account the different policy considerations or that these are employees’ shares. The value of the shares in question must be considered by reference to the price they might reasonably be expected to fetch in a sale between a hypothetical willing vendor and a hypothetical prudent purchaser. This is on the basis of information that a purchaser would reasonably require at the valuation date.

Market value in relation to any assets means the price which those assets might reasonably be expected to fetch on a sale in the open market. If shares, in particular small minority holdings, are being transacted at a price on PISCES, then a discount may not be appropriate for other purposes such as grant options over EMI/CSOP.  Where shares are being transacted at a price, then there is no better evidence of value than actual transactions – these transactions can provide a reliable guide to the current market value. There may be specific circumstances that warrant a price adjustment, such as difference in the company’s circumstances between the PISCES event and the valuation date, a lack of liquidity in the market and if the price is considerably out of sync with normal share valuation principles. This would be considered on the facts of each case.

There will be no advance assurance mechanism to agree market values for PISCES events.

Stamp Duty and Stamp Duty Reserve Tax 

As announced at Budget 2024 PISCES transactions will be exempt from Stamp Duty and Stamp Duty Reserve Tax. A technical consultation on the draft statutory instrument providing the exemption has also been launched at Spring Statement.