Alert - Taxation - Tax Efficient Share Incentives

    November 2009

    Adding value and minimising tax for senior employees

    With the top rate of income tax rising in April 2010 to 50% and higher rate tax relief on pension contributions being withdrawn from April 2011, share incentives that are subject to capital gains tax at 18% are more appealing than has been the case for some time. Hammonds has developed an arrangement that enables quoted companies to use their existing share plans more tax efficiently and deliver greater post-tax returns for their employees.

    At the outset, the employee and an employee benefit trust jointly acquire shares. To minimise the employee's income tax liability, all (or substantially all) of the value in the shares jointly acquired is attributed to the employee benefit trust. As the value of the shares increases, so does the value of the employee's interest. The rise in value when the jointly owned shares are realised by the employee is subject to capital gains tax rather than income tax.