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Employement Related Securities
Employement Related Securities
Employement Related Securities
The ERS rules seek to modify the position in cases where the tax consequences, in the
absence of the ERS rules, would not reflect the full economic value received or in specific
circumstances where the Government intends to apply a more favourable tax treatment.
What does this mean practically?
In practical terms, this means that anyone who establishes a company and becomes a director
of it will be treated as having acquired employment related securities.
Shares that fall within the ERS regime can be acquired in many ways, such as:
Unapproved share options;
Approved share options e.g. EMI
Certain share for share transactions
Are there any exemptions?
The only exemption from the regime is where an individual (A) acquires shares either from:
an individual (B) or
close company that is controlled by that individual B
and has acquired them in the course of a domestic, family or personal relationship.
A close company is broadly a company controlled by five or fewer shareholders or any
number of directors. Typically, in practice this means most SMEs/owner managed
businesses.
Alternatively, where a business is of significant value, and shares could not be acquired
affordably by employees, another route is a growth share scheme. Here, the basic principle is
that the employee acquires a share for low/nil cost and only participates in the growth from
that point. This is achieved by the shares having a capital hurdle, i.e. no right to participation
until the hurdle is surpassed.
At WIM, we have extensive experience working with our clients to help incentivise their
employees.
It is imperative that before such a scheme is implemented care,ful advice is sought with
regard to valuation to minimise any tax exposures.