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Lower exemption for employee shareholders

Lower exemption for employee shareholders

Although employee-shareholder style contracts have not been widely used by rank and file employees, they have been popular with start-ups with high growth potential.

The capital gains tax (CGT) exemption is particularly attractive to key employees and directors because they have been able to enjoy the growth in share value in a tax-efficient manner.

The basic idea is that an employee-shareholder receives tax-advantaged shares in exchange for giving up certain employment rights. The employee-shareholder must receive shares in their employing company with a minimum value of £2,000, but can benefit from a CGT exemption on the disposal of up to £50,000 worth of shares. The shares are valued at the time they are received by the employee, and previously the exemption would have applied regardless of their increase in value – even if sold for millions of pounds.

However, the amount of exemption is now subject to a £100,000 lifetime limit where shares are acquired under an employee-shareholder agreement entered into on or after 17 March 2016. Any past or future gains arising from prior shareholder agreements do not count towards the £100,000 limit.

For example, an employee sells £50,000 worth of these employee-shareholder shares with a gain of £250,000. If the employee-shareholder agreement was entered into before 17 March 2016, the £250,000 gain would be exempt from CGT. If the agreement was later, £150,000 of the gain would be taxed.


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Contact Us

  • Clifford Fry & Co Accountants Salisbury
    St Mary’s House, Netherhampton, Salisbury, Wiltshire, SP2 8PU

    Telephone: 01722 743114

    Our Salisbury region covers the local areas of Amesbury, Downton and Fordingbridge.

  • Clifford Fry & Co Accountants Andover
    Basepoint, Andover Business Centre, Caxton Close, Andover, Hampshire, SP10 3FG

    Telephone: 01264 326338

    Our Andover region covers the local areas of Stockbridge and Winchester.

  • Clifford Fry & Co Accountants Tidworth
    17 Station Road, Tidworth, Wiltshire, SP9 7NW

    Telephone: 01980 258003

    Our Tidworth region covers the local areas of Shrewton, Bulford and Ludgershall.

  • Clifford Fry & Co Accountants Ringwood

    The Buckman Building,
    43 Southampton Road
    , Ringwood, Hampshire,
    BH24 1HE

    Telephone: 01425 536043

    Our Ringwood region covers the local areas in Hampshire.