Long-term incentive plans—capital gains tax consequences
Produced in partnership with Jeremy Edwards of Baker McKenzie
Long-term incentive plans—capital gains tax consequences

The following Share Incentives practice note Produced in partnership with Jeremy Edwards of Baker McKenzie provides comprehensive and up to date legal information covering:

  • Long-term incentive plans—capital gains tax consequences
  • Conditional share awards, nil-cost options, and SARs
  • Timing of CGT event
  • Amount of the capital gain
  • Forfeitable (restricted) shares
  • Timing of CGT event
  • Amount of the gain
  • Calculation of CGT liability
  • Calculation of chargeable gains
  • Share identification rules
  • More...

FORTHCOMING CHANGE: On 14 July 2020, the Office of Tax Simplification announced that it is conducting a review of capital gains tax (CGT), seeking both high-level comments on the principles of CGT, and more detailed comments on the technical detail and practical operation of CGT. See News Analysis: OTS review of capital gains tax—background, scope and next steps.

As explained in the Practice Note: What is a long-term incentive plan?, the most common type of awards that can be made under a long-term incentive plan (LTIP) include:

  1. conditional share awards (commonly known in the US as restricted stock units (RSUs))

  2. nil-cost options

  3. share appreciation rights (SARs), and

  4. forfeitable shares, which can sometimes be described as restricted stock

The likely capital gains tax (CGT) consequences of shares sold, which have been acquired pursuant to the vesting of each type of LTIP award are summarised below. For more detail about the different types of award that may be granted under an LTIP, see Practice Note: Structure of a long-term incentive plan—Types of awards.

Please note that this Practice Note assumes that the employee has been fully subject to income tax and, if the shares are readily convertible, national insurance contributions (NICs) on the acquisition of the shares pursuant to the vesting of the LTIP awards. This Practice Note looks at the CGT charges on the subsequent gains after the

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