How to Give Shares to Employees: Tax-Advantaged Schemes Explained

EMI’s are generally seen as one of the best Employee Share Scheme available both for employees and employers. This is for a variety of reasons.

EMI’s are discretionary schemes, allowing the Company to elect who is eligible for the scheme. The scheme offers generous tax reliefs, allowing employees to benefit from Business Asset Disposal Relief which reduces Capital Gains Tax if the shares are sold 24 months after their procurement.

Further, the shares purchased via the scheme, provided they are purchased at the actual market value, are exempt from National Insurance Contributions and Income Tax.

Corporation tax relief is also granted to companies partaking in the scheme. Profit made by employees, the differential between the purchase price and the sale price, is offered as relief to companies, lowering the annual profit subject to tax.

Due to the flexibility offered to both employers and employees, this scheme is very sought after, however, to qualify for the scheme, substantive criteria must be met. These criteria are as follows:

• Gross assets must not exceed £30 million at the time of grant.
• The Company must be independent of other companies.
• The Company must have a permanent establishment in the UK.
• The Company must have only qualifying subsidiaries.
• The company must have less than 250 employees at the time of grant.
• Employees must work at least 25 hours a week, or 75% of their working time for the Company to be eligible.

The requirements are specific for this scheme, because its intended purpose is to help small / medium sized companies grow. There are, however, some changes to the scheme, forecast for April 2026.

• The employee limit is set to increase to a maximum of 500 from 250.
• Gross asset limit will increase to £120m from £30m.
• The total value of shares that companies can administer will increase from £3m to £6m.

This will massively increase the scope of companies eligible for EMI schemes, and given the benefits, it may be worth researching if these changes make the scheme applicable or worthy of implementation at your own company.

CSOP’s are all-employee schemes, allowing the Company to elect who is eligible for the scheme. The scheme has significantly fewer qualifying requirements than EMI’s and are generally used by large firms who do not fit within the EMI scheme criteria.

Under a CSOP, companies can grant share options to an employee to purchase shares at a set point in time. The option must be a fixed number of shares at a set price, equal to the actual market value of the shares at the time of the grant. An employee can vest a maximum of £60,000 into the scheme, and any gains made will not incur income tax or National Insurance Contributions if the option is exercised after at least three years and no more than 10 years of grant.

This scheme gives employees the option to purchase shares at a set date for a fee which (based on company growth) could be substantially higher than the purchase price and subjects the employee to only standard Capital Gains Tax upon disposal of their shares held.

Similar to the EMI scheme, Corporation Tax deductions may be available to Companies, equal to the gain made on the exercise.

SAYE schemes are non-discretionary schemes, allowing all employees equal access to the scheme. Employees choose a desired amount between £5- £500 to deduct from their post-tax monthly paycheck and put into a HMRC-approved savings-related share scheme for 3-5 years.

At the outset of the scheme, the employer sets the share purchase price, which will remain fixed until maturity of the scheme. The employer may discount the price of the option by up to 20% below the actual market value at the time of grant.

At scheme maturity, participants may either use their savings to exercise their option, or withdraw their cash plus any tax-free bonus. There is no obligation on the employee to exercise the option.

There is no National Income Tax Contribution, or any Income tax due on the grant of the option. Capital Gains Tax may be imposed on the sale of the shares if the sale exceeds the annual exemption, however, if the shares are transferred within 90 days to a pension or ISA, they are exempt from this rule.

Conditions needed to satisfy for eligibility are:

• The company must be free from the control of another company.
• The shares must be ordinary capital.

From the employer perspective, SAYE schemes are highly favourable. The company may deduct the costs from its Corporation Tax bill, and expenses relating to setting up and managing the scheme may also be offset.

SIPs are all-employee schemes, designed as an option to regularly save and buy shares in an employer’s company or parent company. The schemes allow employees to acquire shares in four different capacities:

1. Free Shares – Employees can receive up to £3,600 worth of free shares to annually.
2. Partnership Agreements – Employees can purchase shares from gross pay, up to £1,800 or 10% of annual income (whichever is lower)
3. Matching Shares – Employers can give employees up to 2 additional free matching shares for each partnership share purchased by the employee
4. Dividend Shares – Dividends received on shares held in the plan can be reinvested tax-free into more shares. Theres no HMRC cap, but employers usually choose to set their own limits within scheme rules (Only if employers scheme allows it). You also avoid income tax if you keep the dividend shares in the scheme for at least three years.

Any shares bought, and subsequently kept within the scheme for 5 years, will be exempt from income tax and National Insurance Contributions on the gains.

If shares are acquired and taken out of the plan, upon sale they are subject to Capital Gains Tax. Shares that remain in the scheme until the point of sale, shares transferred to a pension directly from the scheme, and shares transferred within 90 days of taking them out of the plan are exempt from Capital Gains Tax.

SIP is highly tax efficient for employees who retain shares in the plan for specified periods. Free and matching shares withdrawn after five years are completely tax-free. Partnership shares follow similar rules, with tax relief available for shares retained for five years. Dividend shares benefit from exemption after three years.

Employer’s benefit from the contributions from gross pay and the value of free and matching shares can be deducted from the companies Corporation Tax liability

Non tax-advantaged employee share schemes exist in the UK, and there are many options to choose from. Usually they are discretionary in nature, allowing employers to determine who they allow participate, though it is possible for employers to adopt non tax-advantaged all-employee plans. Non tax-advantaged employee share schemes still provide incentive to employees, but they attract no favourable tax treatment making them generally less desirable for employees and employers. That being said, non tax-advantaged employee share schemes can often be made bespoke and more specific to certain agendas and situations, given the more lax nature of the regulations.