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Employee share plans post-budget – are they still worthwhile?

The recent 2024 UK Autumn Budget brought significant changes to the tax landscape, particularly with the increase in Capital Gains Tax (CGT). This has raised questions about whether employee share plans are still an effective method for companies to reward and retain employees. In this article, we’ll explore the implications of these changes and whether share plans remain a worthwhile incentivisation tool for employees and employers.

Overview of employee share plans

Employee share plans allow employees to acquire shares in their employer’s company, often at a discounted rate or with tax advantages. These plans can take various forms, including Enterprise Management Incentives (EMIs), Company Share Option Plans (CSOPs), Save-As-You-Earn (SAYE) schemes, Share Incentive Plans (SIPs), and non-tax advantaged plans such as growth shares and unapproved share options.

Key Autumn Budget changes affecting share plans

The 2024 Autumn Budget introduced several changes that directly affect the tax treatment of employee share plans:

Benefits for employees

Despite these changes, share plans can still offer significant tax advantages. Here’s a breakdown of the tax benefits:

Benefits for employers

Employers also enjoy several benefits from implementing share plans for employees:

The illustration below compares an employee receiving a cash bonus of £50k with a gain on an EMI option of that same amount, assuming the employee is a higher-rate taxpayer, the EMI options’ exercise price is £50k and the shares are sold for £150k post-April 2026.

As illustrated in the table, granting EMI options compared to paying a cash bonus can result in a higher net receipt for the employee and lower net cost to the employer.

Conclusion – are share plans still worthwhile?

While the increase in CGT rates and employer’s NICs does slightly reduce some of the tax benefits, share plans still offer significant long-term advantages. Importantly, the capital value received by employees through these plans is typically subject to CGT rates rather than higher income tax rates, providing further tax efficiency.

In summary, despite the recent Autumn Budget changes, UK employee share plans remain beneficial for employers and employees, both from a tax and cultural perspective. The structure of an employee share plan remains key to the success of the plan, as does the communication to participants.

If you would like more information or have any queries about the areas mentioned above, please contact Martin Cooper.

authors:martin-cooper,authors:liam-renton