Employee trusts and share schemes

There are currently several types of tax-approved employee share scheme:

• Company share option plans (“CSOPs”);
• Enterprise management incentive (“EMI”) share options;
• SAYE option schemes
• Share incentive plans (“SIPs”, formerly known as all employee share ownership plans).

Under CSOPs and EMI options, selected employees may be granted rights to buy shares in their employer or another group company at a future date. In effect employees can benefit from increases in the price of shares between the grant of an option and the time when the option is exercised. The value of options that can be granted under a CSOP is lower than under an EMI option and the conditions associated with CSOP options are generally tighter than under EMI options. On the other hand, the conditions that must be satisfied by a company granting EMI options are tighter than under a CSOP scheme. There are restrictions relating to independence from other companies, gross assets and the nature of the company’s trade. It may, therefore, be possible to set up a CSOP where EMI options could not be used.

Under SAYE schemes all employees have an option to buy shares using money that they save under an associated savings arrangement. Options may be granted at a discount of up to 20%. Employees are protected from risk because, if the share price goes down during the savings contract, they still receive their savings together with a tax-free bonus.

A SIP is a scheme for all employees, which involves shares being held in trust on their behalf. Employees may be able to buy shares and employers may give shares to employees, in both cases via the trust.

As well as the approved schemes, companies may use a variety of other share incentive plans. These schemes are not usually tax-favoured but offer flexibility.

Employee benefit trusts may be used as a vehicle to satisfy shares issued or awarded under such schemes or otherwise to provide incentives and rewards.

Where quoted companies are involved, institutional investors have important requirements that must be satisfied.

Examples of how we can help

• Analyse possibilities and make recommendations in the light of the client’s commercial aims. Tax, company and even trust law may be involved.
• Draft documentation.
• Liaise with HM Revenue & Customs, institutional investors and others as required.;
• Advise on the impact of corporate reorganisations or employees moving abroad.

Please contact us to find out more about our services and discuss your situation in more detail.