Guidance

HS287 Capital Gains Tax and employee share schemes (2023)

Updated 6 April 2024

Employee share and security schemes and Capital Gains Tax

This helpsheet deals with the following:

• approved share incentive plans (SIPs)
• other approved schemes
• transfers to Individual Savings Accounts (ISAs)
• transfers to certain pension schemes
• Enterprise Management Incentives (EMIs)
• unapproved share schemes
• same day share acquisitions
• a relief on certain disposals of unlisted shares to an approved share incentive plan

The information in this helpsheet will help you to complete the Capital Gains Tax summary pages of your tax return when you have disposed of shares you acquired because of your job, or by exercising a share option granted because you are (or were) a director or an employee. This helpsheet describes the capital gains costs of shares and other securities that are chargeable assets that you get because of your employment after 31 August 2003.

If you acquired such shares, including shares acquired by the exercise of share options, before 31 August 2003, please refer to HMRC’s Capital Gains Manual. Some different rules applied before that date.

If you’ve disposed of some of your shares and kept others in the same company, you may also need Helpsheet 284 Shares and Capital Gains Tax.

For information about Income Tax and employee shares, please see SA101 Notes Additional information notes, pages AiN 2 to AiN 4, or see Employee Tax Advantaged Share Scheme User Manual. If you’re in any doubt about how to calculate your gain or loss for Capital Gains Tax (CGT) purposes, ask us or your tax adviser.

Employee share schemes are classified as Tax advantaged or Non-Tax Advantaged. The main difference is that employees do not usually pay Income Tax when they acquire shares under a Tax Advantaged Scheme. Also, you will not usually pay Income Tax if you acquire shares by exercising an EMI share option.

Claims and elections — employee share schemes

If you’re making any claim or election on the disposal of shares relating to an employee share scheme of any type, you must put the code ESH into box 36 (for listed shares) or box 20 (for unlisted shares) of the Capital Gains Tax summary pages. However, if there are other transactions that are included in the same section of the form and more than one code could apply to box 36, then you should use the code MUL. See the Capital Gains Tax summary notes for more information.

Share incentive plans (SIPs)

If you keep your shares in a SIP until you dispose of them, you will have no CGT to pay in respect of this disposal. If you keep the shares after you take them out of the plan and dispose of them later, your cost for capital gains purposes will be their market value on the date the shares leave the plan.

Savings-related share option schemes (SAYE schemes)

The capital gains cost of your shares is usually what you pay for them when you exercise your option. Where exceptionally you pay Income Tax on the exercise of your option, the amount chargeable to Income Tax forms part of the cost of your shares.

Individual Savings Accounts (ISAs)

In the tax year to 5 April 2023, you could transfer shares worth up to £20,000 (£20,000 in the tax year to 5 April 2022) at the date of transfer into an ISA directly from a SIP, an approved profit-sharing scheme or an SAYE scheme, providing certain conditions were met. If you transferred your shares to an ISA, no CGT is payable on the transfer or on the later disposal of the shares in the ISA. For general information please see ISAs.

Personal pension schemes/stakeholder pension schemes

In the tax year to 5 April 2023, you could transfer shares to some personal or stakeholder pension schemes from an SAYE scheme or a SIP, providing certain conditions were met. You dispose of the shares you transfer, so if you make a gain you may be liable to CGT. Usually, you will make a gain on your SAYE and approved profit-sharing scheme shares because you acquire them for less than the market value at the date of the transfer to your pension scheme. If you transfer shares directly from the SIP to your pension scheme you will not be liable to CGT. But if you take the shares out of the plan and transfer them later, but within the 90-day limit, you may make a capital gain.

Company share option plans (CSOPs)

The capital gains cost of your shares is usually what you pay for them when you exercise your option. Where exceptionally you pay Income Tax on the exercise of your option, the amount chargeable to Income Tax forms part of the cost of your shares.

Enterprise Management Incentives (EMIs)

If you exercise your EMI option the capital gains cost of your shares is what you pay for them together with the amount charged to Income Tax, if any, on the exercise of your option.

Employee share/securities options

If you exercise a share option, the capital gains cost of your shares is the total of:

• what you pay for the option (if anything)
• the price you pay for the shares when you exercise the option
• the amount chargeable to Income Tax on the exercise

If you exercise an option over securities that are chargeable assets, but not shares, the capital gains cost of your securities is the total of:

• what you pay for the option (if anything)
• the price you pay for the securities when you exercise the option
• the amount chargeable to Income Tax on the exercise

All employee share or securities options

You’re generally treated for capital gains purposes as acquiring your shares at the date when you exercise your option. When you exercise your option, you may agree with your employer that you will pay part or all of your employer’s National Insurance contribution if any is due. You can claim Income Tax relief for this payment. The amount on which you get Income Tax relief does not reduce the cost of your shares for capital gains purposes. If you release your employee share option in consideration of the grant of a new share option, and do not receive anything else, you will not be liable to CGT on receipt of the new option. You may be liable to CGT if you receive something else, as well as the new share option and you do not pay Income Tax on whatever else you receive. If you do not exercise an option and it lapses you do not make an allowable loss for CGT purposes.

Unapproved employee share or securities schemes

If, because of your job, you acquire free or cheap shares or other securities outside an approved share scheme and not by exercising a share option, the capital gains cost is generally their market value at the date you acquire them.

The table below sets out the capital gains costs of some shares and other securities.

Shares or securities

Acquired after 31 August 2003

Shares or securities	Acquired after 31 August 2003
Shares subject to risk of forfeiture for 5 years or less	Actual cost-plus amounts, if any, charged to Income Tax on acquisition, variation, removal of risk or on disposal subject to risk
Shares subject to restrictions other than risk above	Actual cost-plus amounts, if any, charged to Income Tax on acquisition, variation, removal of risk or on removal of risk or on disposal subject to risk
Securities other than shares subject to restrictions, that are on chargeable assets	Actual cost-plus amounts if any, charged to Income Tax acquisition, variation, removal of risk or on disposal subject to risk
Convertible shares	Actual cost-plus amounts charged to Income Tax on acquisition and conversion
Convertible securities other than shares that are chargeable assets	Actual cost-plus amounts charged to Income Tax on acquisition and conversion

Shares subject to restrictions on disposal

If, because of your job, you acquire shares which you cannot dispose of freely, for example, for 3 years after you receive them, these shares are treated as a separate class of shares from any other shares in the company that you hold until the restrictions are removed. So, if you hold other shares in the company and sell some of them, you will not be treated as selling the shares that you cannot dispose of freely.

Same day share acquisitions

Shares of the same class in the same company acquired on the same day are normally pooled. When you dispose of them you use the average cost per share in calculating any capital gain or loss. However, there’s a rule that may help you to reduce your CGT liability when you dispose of shares. You may elect to divide the shares you acquire on the same day into 2 categories. One category includes all the shares you acquire by exercising a qualifying EMI option and most shares that you acquire by exercising an SAYE or CSOP option. The other category includes any SAYE or CSOP shares where you pay Income Tax when you acquire them, and all other shares of the same class in the same company that you acquire on the same day. You treat shares in this other category as disposed of first. These shares that you treat as disposed of first will generally give rise to smaller gains.

This election applies only to shares acquired on the same day. It overrides the normal rules. You will need to consider your individual circumstances to decide whether or not to elect.

When to Elect

You can make the election after you dispose of shares. You must make the election within one year and 10 months after the end of the tax year in which you first dispose of some of the shares acquired on the same day — for the year ended 5 April 2023 by 31 January 2025. The election applies to all the shares of the same class in the same company acquired on the same day. It applies to the first and all subsequent disposals of these shares. (See the Capital Gains Manual for more detail).

How you elect

There is no special form. Explain that you are making a ‘same day acquisition’ election. Provide the:

• date you acquired the shares
• name of the company
• total number, class and cost or value of shares you acquired on the same day
• number and cost of shares you acquired in the category treated as disposed of after other shares acquired by exercising
  • a qualifying EMI option
  • a SAYE option where you paid no Income Tax
  • a CSOP option where you paid no Income Tax
• date, number of shares disposed of and the proceeds of your first disposal of some of the shares acquired on the same day

If, before the time limit is up, you make a return showing the first disposal of shares and you want to make an election, include it in that return. Enter the information about the disposal of shares in the Capital Gains Tax summary pages. Enter ‘same day acquisition election’ in your computations next to that disposal and include any additional details in the ‘Any other information box’, box 54, on page CG 3 or in the computations. Otherwise write to us. You should make reference to the election each time you dispose of any of the remaining shares.

Relief on transfers of shares to an approved share incentive plan

This relief is designed to encourage shareholders disposing of their unlisted shares to sell them to the trustees of the company SIP for the benefit of all the employees of the company. You do not have to be an employee to claim it.

Getting relief

For details of the relief and the conditions which must be met for a claim, please see the Capital Gains Manual.

How to claim relief

When you claim relief, you must tell us about:

• the shares you have disposed of
• the amount you received
• the date when you disposed of the shares
• the name and address of the trustees of the SIP to whom you disposed of the shares
• the replacement asset you have acquired
• the date when you acquired it
• its cost
• the amount of disposal proceeds of the shares that you’ve used to acquire the replacement asset

Enter the information about the disposal of shares on the Capital Gains Tax summary pages. Enter ‘relief on disposal to share incentive plan’ and the amount claimed in your computations next to that disposal and include any additional details in box 54 on page CG 3 or in the computations about the SIP and the replacement assets. The disposal of the shares should be entered on the Capital Gains Tax summary pages but you may prefer to claim the relief at a later date.

Employee Shareholder Shares (ESS)

Employee shareholder is an employment status, available from 1 September 2013. Income Tax reliefs and the Capital Gains Tax exemption relating to shares received as consideration for entering into an employee shareholder agreement on or after 1 December 2016 have been removed. There are transitional rules for some employees who have received the mandatory independent advice on their proposed employee shareholder agreement on 23 November 2016.

Employee shareholders have different employment rights to employees generally and are awarded shares in their employer or in a parent undertaking.

If you acquire shares in consideration of an employee shareholder agreement with your employer (ESS), any gain arising when you dispose of those shares may be exempt (read the section ‘Significant changes’) from CGT and correspondingly any loss may not be allowable.

The exemption applies only to the first £50,000 worth of ESS you acquire in consideration of an employee shareholder agreement. If you enter into more than one agreement, the £50,000 limit can apply separately to each. But a single £50,000 limit applies in relation to ESS acquired in consideration of agreements with the same company and with companies associated with that company.

For the purpose of applying the £50,000 limit, the value of a share (at any time) is fixed at its market value at the time you acquired it. For the same purpose, if a share is subject to restrictions, its value is fixed at what its market value would be at the time you acquired it but for the restrictions.

The exemption does not apply if, on the date you acquire the share, you or an individual connected with you has a material interest in your employer or in a parent undertaking. Neither does it apply if you, or an individual connected with you, had such an interest at any time in the previous year. You will, for example, have a material interest in a company if you can exercise at least 25% of the voting rights in the company, or if in the case of a close company, you’ve rights that would entitle you to receive at least 25% of the assets that would be available for distribution in the event of a winding up. You or an individual connected with you may also have a material interest by reference to voting powers or rights held by connected persons. For more information see our Capital Gains Tax Manual.

Significant changes

Significant changes were made to the CG treatment of employee shareholder agreements on 16 March 2016. For employee shareholder agreements entered into on or after 17 March 2016 any gain on the first £50,000 worth of shares is subject to a lifetime cap on gains of £100,000. Once an individual has used up the £100,000 limit any gains above this amount will be subject to CGT. This limit applies per individual, not per shareholder agreement. The treatment of shares acquired in consideration of an employee shareholder agreement entered into before 17 March 2016 is not affected by the 2016 lifetime cap change.

Transfers between spouses or civil partners

As a result of the 2016 lifetime cap changes the rules regarding transfers to spouses or civil partners and share reorganisations have been amended.

• Where the market value at the time of transfer would give rise to a gain which is less than the lifetime limit available to the transferor spouse or civil partner, the transfer is deemed to take place at an amount equal to the market value.
• Where the market value at the time of transfer would give rise to a gain which is more than the lifetime limit available to the transferor spouse or civil partner, the transfer is deemed to take place at an amount which gives rise to a gain equal to the amount of available ESS lifetime limit
• Where the transferor spouse or civil partner has no ESS lifetime limit available (i.e., the entire £100,000 has already been ‘used up’ on previous transfers of ESS) the transfer is deemed to take place at an amount which would give rise to neither a gain nor a loss.

Share reorganisations

Where shares acquired through an employee shareholder agreement entered into on or after 17 March 2016 are exchanged for other shares in a share reorganisation:

• If the disposal (using market value) would give rise to a gain which is more than the available ESS lifetime limit, then the transfer is deemed to take place at an amount that gives rise to a gain equal to the available ESS lifetime limit.
• If the disposal (using market value) would give rise to a gain which is less than the available ESS lifetime limit, then the transfer is deemed to take place at market value.
• Where the shareholder has none of their ESS £100,000 lifetime limit available the disposal is deemed to be at a value that would give rise to neither a gain nor a loss.
• If the disposal would give rise to a loss, the deemed transfer value is that value which would give rise to neither a gain nor a loss.

The ordinary share pooling and matching rules see Helpsheet 284 Shares and Capital Gains Tax do not apply to ESS that are exempt. If you hold shares of the same class in the same company and some, but not all, are exempt ESS, then, on a disposal of less than all of the shares you hold, you may determine what proportion of the shares disposed of are exempt ESS. You apportion the disposal consideration accordingly.

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