Employee Shareholder Status – Hit or Miss?

By:       Anne Wilson

Employee Shareholder Status

Successive governments have sought to stimulate growth by introducing a series of schemes to incentivise employees, with particular emphasis on share schemes.  Not all these schemes have been a hit with employers and employees alike.  Some earlier schemes were abandoned because of poor take up as a result of over complicated rules or were unsuitable for unquoted companies and smaller employers thus not spreading the net of share participation as widely as possible.  To a degree this has been addressed by the introduction of the excellent Enterprise Management Incentive Scheme which is suitable for smaller companies.


The latest incarnation of the share theme is “Employee Shareholders” which looks as if it has all the hallmarks of another flop!

Under the scheme employees can receive up to £2,000 of shares in their employers company without an income tax charge and also dispose of shares received under the scheme free of capital gains tax up to a limit of £50,000 of worth of employee shares.

What’s not to like if you are employee?  Unfortunately in order to access the benefit of the scheme the employee must enter into an “Employee Shareholder Agreement”.  Such an agreement would be made under the Employment Rights Act of 1996 and the employee agrees to give up

  • The right not to be unfairly dismissed.
  • The right to a redundancy payment.
  • The right to request study or training
  • The right to request flexible working.

The employer granting the shares must ensure the employee takes independent legal advice before they sign the Employee Shareholder Agreement.

Employees will need to weight the value of the employment rights that they are being required to give up against the tax benefits they would gain.   If a 20% taxpayer was to enter into an agreement and receive £2,000 of shares from their employer that is a tax saving of £400, for a 40% taxpayer it would be £800.   The capital gains tax benefits are less clear cut as they presuppose that the employee will make substantial gains on their shares in excess of the annual capital gains tax exemption.

The scheme may be of interest to companies where spectacular growth is anticipated and where the employees are prepared to take a risk to share in that growth, it seems unlikely that many employees would wish to surrender their employment rights otherwise.

Is this just “window dressing” or will the measure genuinely help companies to grow?