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Can you swap ‘shares for rights’ more than once?

Where employee shareholder status ('shares for rights') is claimed, employees can have tax-advantaged shares, subject to financial limits. £2,000 income tax free on issue, up to £50,000 by initial value protected from CGT on disposal. We have been asked if this will apply to subsequent issues of ESS shares to the same individual.

HMRCs guidance on the income tax rules for ESS set out the position in relation to the £2,000 threshold.

The first day on which an award of shares is made in exchange for rights must be for shares of at least £2,000 value otherwise ESS does not apply. Any subsequent award of free shares from that employer will be charged to income tax and NIC on the value in the usual way.

There is also linkage to any 'associated ES agreements' where shares are given for employment rights from an 'associated company'. For these again the £2,000 limit is unavailable.

A new employment with a third party will qualify for the £2,000 tax free amount of shares for ESS.

HMRCs guidance on the CGT rules for ESS sets out the position in relation to the £50,000 limit on shares which can later be sold CGT free.

Shares issued in tranches in exchange for rights will qualify for ESS CGT exemption, until the total value of shares issued reaches £50,000. If a tranche exceeds the limit, that tranche (but not tranches issued on an earlier day) will be apportioned between ESS non-qualifying and ESS qualifying shares.

Again there is linkage to shares issued by an associated company. Both companies’ shares count towards the £50,000 limit, even if separate 'shares for rights' agreements are entered into for separate employments for the two companies.

However there is no such restriction on obtaining tax free treatment on shares issued by a third party company.

So yes, one person can have more than one lot of ‘shares for rights’ issued with tax-free treatment.

Author - Samuel Dooley

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

Jonathan Robinson

Partner - Head of Private Equity

I am a Partner and head of the firm’s Private Equity team.