EMI share scheme

Employer's tax on gift of share

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A client of mine will be gifted 150,000 shares under the EMI scheme by her employer. The shares were agreed at a value of 0.0001 per share with HMRC. Her employer is concerned about the tax he may face. Gifting share of a private company is subject to capital gains tax and I believe this is the case even if the shares are gifted to employees under EMI. Is this correct? I could not find any direct answer specific to EMI so I am assuming the general rule applies.

The employer is also concerned about what value HMRC will hold in relation to capital gains tax for the employer for gifting the shares. Is it the value they agree for the transfer at 0.0001 or the market value of the share? This is a private Ltd company. The initial share value for her employer was £1 per share before it was agreed to 0.0001 for the transfer.

If the market value is taken to calculate capital gains is it not better to issue new shares rather than gifting them. Any advice would be helpful. This is new territory for me.

Replies (12)

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By Tax Dragon
04th Dec 2021 16:42

Fortunately, advising a client's employer is not territory you need to worry about venturing into.

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Replying to Tax Dragon:
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By sanjarkhan
04th Dec 2021 17:00

It's a kind of self-learning for me and the employer may potentially become a client.

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Replying to sanjarkhan:
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By David Ex
04th Dec 2021 17:07

sanjarkhan wrote:

It's a kind of self-learning for me and the employer may potentially become a client.

Do let us know what your research reveals.

This is ICAEW advice on conflicts of interest:

https://www.icaew.com/-/media/corporate/files/technical/ethics/icaew-gui...

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Replying to Tax Dragon:
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By David Ex
04th Dec 2021 17:02

Tax Dragon wrote:

Fortunately, advising a client's employer is not territory you need to worry about venturing into.

You spotted that one too!!

Agree, assuming the employer isn’t also a client, the OP should steer well. Would there be a conflict acting for both in any event?

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By Paul Crowley
04th Dec 2021 17:15

New territory means do not advise unless you want the damage to hit your PII
Operate on execution only and get that in writing and email

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By sanjarkhan
04th Dec 2021 17:40

Let's just say it's only for my learning. After lots of research, I could not find a direct answer hence seek for help here.

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By More unearned luck
04th Dec 2021 19:42

A little clarity of thought might help: In your first sentence 'employer' surely means the limited company that employs your client or its holding company. In your second sentence you seem to mean the flesh and blood shareholder of the 'first' employer, as you use the pronoun 'he'.

To acquire shares under EMI your client must be an employee of the relevant company or a subsidiary of it. EMI shares are acquired via a share option. That option is (usually) issued by the relevant company. It has no right to make the shares subject of the option those owned by the shareholders; the option will be for new shares.

So, if your client exercises the option she will not receive any shares from the existing shareholders. They will have X shares before the exercise and will still have X shares after the exercise. CGT is a tax on the disposal of assets and no one has disposes of an asset at the time of exercise.

Who advised the employer on the setting up of the scheme? Why weren't the tax implications for all parties discussed with the director during that process? If he's forgotten, why has he asked his company's employee's accountant for advice rather than asked the EMI advisers or the company's accountant? .

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By More unearned luck
04th Dec 2021 19:42

A little clarity of thought might help: In your first sentence 'employer' surely means the limited company that employs your client or its holding company. In your second sentence you seem to mean the flesh and blood shareholder of the 'first' employer, as you use the pronoun 'he'.

To acquire shares under EMI your client must be an employee of the relevant company or a subsidiary of it. EMI shares are acquired via a share option. That option is (usually) issued by the relevant company. It has no right to make the shares subject of the option those owned by the shareholders; the option will be for new shares.

So, if your client exercises the option she will not receive any shares from the existing shareholders. They will have X shares before the exercise and will still have X shares after the exercise. CGT is a tax on the disposal of assets and no one has disposes of an asset at the time of exercise.

Who advised the employer on the setting up of the scheme? Why weren't the tax implications for all parties discussed with the director during that process? If he's forgotten, why has he asked his company's employee's accountant for advice rather than asked the EMI advisers or the company's accountant? .

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Replying to More unearned luck:
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By Tax Dragon
04th Dec 2021 19:59

EMI options may be granted over the employer's shareholder's/shareholders' shares. May not be the norm, but it does happen.

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Replying to More unearned luck:
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By sanjarkhan
04th Dec 2021 20:34

Apology for the lack of clarity. By 'he' I meant the director of the company who is gifting a part of his share to his key employee. I believe shareholder of a company can gift their shares to another employee under EMI scheme.

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Replying to sanjarkhan:
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By AndyC555
06th Dec 2021 10:34

Yes. Shares owned by an existing shareholder can form part of an EMI. I have just such a situation (the other shareholders can't be convinced to allow the dilution that issuing new shares would cause).

Yes, there will be CGT for the existing shareholder to consider.

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By sanjarkhan
04th Dec 2021 20:45

.

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