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Employee share schemes

Proposals have been announced to simplify and modify legislation in certain areas.

CSOP

Under the Company Share Option Plan (CSOP), which is the discretionary approved share option scheme under which options can be granted for up to £30,000 for an employee, it will be possible to exercise options, without the tax benefits, within 3 years of each other.

Currently, under the CSOP once an option has been exercised (which cannot be within 3 years of grant), the next exercise cannot be within 3 years if an immediate income tax charge is to be avoided.

Under the proposed new rules, exercise within 3 years of a previous exercise will also avoid the immediate income tax charge. Another change is that those who leave employment through injury, disability, redundancy or retirement can exercise their option within 3 years of grant without an income tax charge. Both of these changes are effective from 9 April.

The definition of “material interest” for the CSOP will be brought into line with that for the Share Incentive Plan (SIP), which was originally known as the All-Employee Share Ownership Plan, and the SAYE scheme. A material interest will mean, broadly, that in the case of a close company the member and certain associates own between them more than 25% of the ordinary shares. An employee who has a material interest cannot benefit under an approved share option scheme.

Finally, certain anti-avoidance measures become effective from the date of Royal Assent.

SAYE scheme

This is the regular savings approved share option scheme available to all employees. The right to exercise an option will no longer be lost, from the date of Royal Assent, when an employee loses his job following injury, disability, redundancy or retirement following a move between associated companies.

SIP

Currently an employee can only purchase partnership shares up to the lesser of £125 per month and 10% of salary. The maximum amount of shares that can be bought in a year is £1,500 worth. From the date of Royal Assent, shares up to the annual limit of £1,500 can be purchased at any time in the year.

The holding period for dividend shares after which they are free of income tax is increased from 3 years to 5 years to bring them into line with the base shares, ie free shares etc. This change is also effective from the date of Royal Assent.

“Unapproved schemes”

Changes have been, with effect from 9 April, to extend the deadline by which employees must refund PAYE on share option gains to their employer.

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