The ability to offer tax-favoured employee shareholder shares or ESS, until recently very common in private equity company arrangements, has been withdrawn with almost immediate effect. The only ESS arrangements that can now be completed are those where the independent advice has been given in which case the relevant employee shareholder agreement must be entered into by 1 December (or if advice was given today before 1.30 pm) 2 December.
ESS arrangements give an employee at least £2,000 of free shares (which are tax and NIC free too on award), although up to £50,000 of shares can be awarded on a taxable basis. Gains on shares awarded before March 2016 are completely tax free on sale, although only £100,000 of gains on shares awarded since March are tax free.
These arrangements, designed for broad employee appeal, quickly became used predominantly in private equity arrangements often with geared growth arrangements. This meant that £2,000 of shares could on a successful exit be worth many times more and be sold completely free of capital gains tax.
Their demise therefore is not unexpected, and there will be a sigh of relief that arrangements already in place will keep their favourable tax treatment, at least for the moment.