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Types of share plan

Tax Advantaged Plans

Currently, there are 4 different types of HMRC tax advantaged Share Schemes

  • Save as you Earn (SAYE) - Savings-Related Share Option Scheme or Sharesave, introduced in 1980
  • The Share Incentive Plan (SIP) - is the most recent all-employee plan, launched in 2000
  • The Company Share Option Plans or (CSOP) - is a discretionary plan, which means that companies may choose which employees they would like to participate
  • The Enterprise Management Incentives (EMI) - were introduced in 2000 and are specifically targeted at smaller, higher risk companies

Non Tax Advantaged Plans

In addition to the tax-advantaged plans above, companies may also offer non tax advantaged share plans. Although these do not offer the tax relief offered under the tax-advantaged plans, they do offer more flexibility in design, meaning that companies can create a bespoke scheme to meet their needs.

Non tax advantaged plans include:

  • Long Term Incentive Plans (LTIP)
  • Restricted Share Plans (RSP)
  • Unapproved Options Plans

How do the plans work - in Outline?

Of the four tax-advantaged UK share plans, three are share option plans, but the fourth - the Share Incentive Plan - provides shares in a variety of ways.

A share option is a right to buy a share at a future date at a fixed price. This price will frequently be the same as the market value of the share at the date the option is granted, but sometimes it might be more or less.

HMRC Tax Advantaged Plans

Tax Advantaged Plans Options:

Company Share Option Plan (CSOP) Selective

  • Suitable if your company wishes to grant options to selected employees
  • Exercise price must not be less than market value as at the date of grant
  • Minimum of three years must pass between grant and exercise
  • Limit of £30,000

Enterprise Management Incentive (EMI) Selective

  • EMI will frequently be your best choice if you wish to grant options to selected employees, because it brings very powerful tax breaks
  • Options can be granted at any exercise price, with no minimum period of exercise
  • Limit of £250,000 on value of shares per employee subject to option (measured at date of grant) and £3 million total for the company
  • EMI is intended for smaller companies with no more than 250 employees and maximum gross assets of £30 million. Certain types of business are excluded

Save As You Earn (SAYE) All-Employee

  • Suitable if your company wishes to grant options to all employees
  • Number of options granted is linked to amount each employee agrees to save per month - minimum of £5, maximum of £500 (from 6/5/2014)
  • Exercise price may be discounted from market value as at the date of grant by up to 20%
  • At the end of a fixed period (3 or 5 years) employees receive a tax free bonus on their savings
  • Employees decide at end of period whether to exercise options using the savings plus bonus, or keep the money

Shares (Free, Partnership or Matching):

Share Incentive Plan (SIP) All-Employee

  • You can offer employees the opportunity to buy shares (Partnership Shares), receive free shares (Free Shares) or buy shares matched by free shares (Matching shares)
  • Additionally, if you wish, any dividends paid out on shares acquired under this plan can be re-invested in the Plan (Dividend Shares)
  • Tax relief's apply in relation to Partnership Shares, Free Shares, Matching Shares and Dividend Shares
  • There are a number of conditions that must be satisfied for tax relief to apply to an employee. A key one is that the shares must normally be held in a trust on the employee's behalf for five years before they may be removed without incurring an income tax or NIC liability

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