In additional to their commercial benefits, joint shares offer potentially significant cost and tax savings to both employees and the employer.
Due to the lack of immediate economic entitlement when the joint shares are initially acquired, the full unrestricted market value of the employee’s interest in the joint shares will be relatively low, reflecting the fact that they have at that point in time only “hope value”. The cost (if any) to employees of acquiring their interest is therefore managed, as is the downside risk to the employee.
By managing the initial value of the employee’s interest, there should be little or no income tax or National Insurance contributions (“NIC”) to pay on acquisition of the interest in the Joint Shares.
Importantly also, any growth in value for the employee should be subject to CGT (usually at 20% and with the use of annual exemptions to mitigate any such tax) and not subject to the higher rates of income tax and NIC.
Joint share ownership plans therefore offer the beneficial tax treatment usually only reserved for employees under HMRC tax favoured plans (but without their monetary constraints and stringent qualifying conditions) or growth shares.
It is important to note however that there will be little or no corporation tax relief in relation to joint shares for the employee’s employing company on any element of future growth in value.