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Glasgow
+44 (0)141 221 2984

Edinburgh
+44 (0)131 225 6366

Stirling
+44 (0)1786 451745

Dumbarton
+44 (0)1389 765238

Hamilton
+44 (0)1698 459444

French Duncan

Employee Shares with No Capital Gains Tax

09 October 2012

The Chancellor of the Exchequer has announced plans for a new kind of employment contract called an "owner-employee".

Owner-employees will exchange some of their UK employment rights for rights of ownership in the form of shares in the business they work, with any gains on disposal being exempt from capital gains tax.

Companies of any size will be able to use this new kind of contract, but it is principally intended for fast growing small and medium sized companies that want to create a flexible workforce.

Under the new type of contract, employees will be given between £2,000 and £50,000 of shares that are exempt from capital gains tax. In exchange, they will give up their UK rights on unfair dismissal, redundancy, the right to request flexible working, time off for training and will be required to provide 16 weeks notice of a firm date of return from maternity leave instead of the usual 8.

Owner-employee status will be optional for existing employees, however both established companies and new start-ups can choose to only offer this new type of contract for new hires. Companies recruiting owner-employees will continue to have the option of inserting more generous employment conditions into the employment contract if they wish.

Legislation to bring in the new owner-employee contract will come later this year so that companies can use the new type of contract from April 2013. The Government will consult on some details of the contract later this month. Owner-employees receiving full capital gains tax relief on the shares awarded as part of their contract will still be eligible for existing employee share ownership schemes such as the Enterprise Management Incentive, etc.

Neil Strong
Senior Tax Manager
n.strong@frenchduncan.co.uk
0141 221 2984