Non tax advantaged share awards

By Tolley in association with Grant Thornton
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The following Owner-Managed Businesses guidance note by Tolley in association with Grant Thornton provides comprehensive and up to date tax information covering:

  • Non tax advantaged share awards
  • Summary
  • Key considerations
  • Tax treatment and reporting

Summary

Tax advantaged share award plans (termed as ‘unapproved share award plans’ prior to April 2014) are limited in size, tightly defined and often require awards to be offered to all staff. Accordingly, any awards outside this type of plan will be considered non tax advantaged.

Typically, share awards are seen in the reward packages of senior executives and key employees, often as part of a wider long term incentive plan (LTIP).

Although there may be some similarities between awards of shares and options, the key difference is that actual ownership of the share is delayed until the option is exercised. In addition to practical considerations (such as the clock for entrepreneurs’ relief ― see the Conditions for entrepreneurs' relief guidance note ― starting from the date of share acquisition), it may be considered more incentivising for employees to have ownership from an earlier date.

Key considerations
Acquisition of the shares

The first consideration with any share award will be to establish the market value of the shares being acquired, see the Fiscal share valuations guidance note.

The second consideration is whether the shares are restricted shares (see the Restricted securities guidance note), as this may adjust the market value for tax purposes.

Once the relevant market value has been established, any difference between that market value and the amount actually paid will be considered a benefit to the employee and charged to tax under the general charging provisions in ITEPA 2003, s 62.

Where shares are acquired as a result of an exercise of options, any amounts which have already been subject to taxation on the exercise of the option will, effectively, be considered amounts ‘paid’ to acquire the shares (thus avoiding a double charge to tax on the same event). The exact tax treatment of the shares acquired

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