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new class shares to employee

We are all fairly familiar with the concept that any shares gifted to an employee at undervalue is subject to income tax and potentially NIC.

We have the situation whereby a company has been trading for 10 years, it is moderately profitable and the ordinary shares are valued on an earnings basis at £1m.

The company would like to incentivise a senior manager with shares on the basis that he participates in the future earnings and capital growth of the company.

They propose to issue ordinary B shares to the employee which have a right to dividend, zero rights to vote and rights to assets should the value of the shares exceed £1m in the future.

Any tax problems?

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24th Jul 2012 11:17

How about s447 ITEPA and the fact they won't qualify for ER on disposal?

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By blok
24th Jul 2012 11:48

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s447 does applie but the value at receipt is nil.  The only value is hope value going forward which will be determined by his own future sweat rather than any inherent underlying asset.  This is a commercial arrangement, no one is trying to be clever.

Yes - ER may not be available on a disposal.

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