Phantom share schemes ― an overview

By Tolley

The following Employment Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Phantom share schemes ― an overview
  • Operation
  • Taxation
  • Employer’s perspective
  • Employee’s perspective

Phantom share schemes are bonus arrangements where the calculation of the reward is measured by improvements in corporate performance.

Whilst not technically a share scheme, these are used by both share scheme planners and employers. They should therefore be considered as part of an overall project to decide on the best ways of incentivising employees based on company share performance.


Phantom share schemes operate as a type of shadow share option arrangement. The main difference from the standard share scheme model is that phantom schemes do not involve the use of any actual shares.

This can prove attractive to companies that do not wish to allow employees to have direct holdings, either because they are concerned about altering the balance of power or do not want to allow anybody except founders, family members or equivalents

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