Can shares be awarded to employees completely tax-free?

Even shares awarded pursuant to enterprise management incentives (EMI) schemes, still at best, result in capital gains tax (CGT) payable at a rate of 10% on any gains made on the shares. The only way an employee can receive shares with zero income tax, National Insurance contributions (NICs) and CGT to pay (when gains are made) is by using a qualifying Schedule 2 share incentive plan (SIP) and operating it in a particular manner.

SIPs give employees the opportunity to acquire shares in their employer or a parent company of the employer on a tax-efficient basis. The legislative framework governing the SIP is mostly contained in:

1. •

   Schedule 2 to the Income tax (Earnings and Pensions) Act 2003 (ITEPA 2003), which sets out how the SIP can be operated and the main conditions that have to be satisfied for the SIP to be a ‘Schedule 2 SIP’, and

2. •

   ITEPA 2003, Pt 7, Ch 6, which sets out how shares acquired under a SIP are treated for income tax purposes

ITEPA 2003,