Share option schemes: could they change after the election?

Share option schemes have cross-party support, but are there changes on the horizon after the general election?

Although we knew a general election had to be called by the end of this calendar year, it came as a surprise to many to be so early in the summer.

(For more on what the main parties have said on tax, check out our Election Tax Watch article)

Despite the uncertainty that surrounds any tax changes that occur because of a general election, it seems unlikely there will be any surprises as regards to tax-advantaged share option schemes. But we look below at what could happen.

Four schemes

There are four tax-advantaged HMRC approved share option schemes:

Share Incentive Plans (SIP);
Save As You Earn (SAYE);
Company Share Option Plans (CSOP); and
Enterprise Management Incentive (EMI).

They are all used to reward employees with shares tax efficiently.

However, a SIP and SAYE must be offered to all employees, whereas CSOPs and EMIs can be established for select key employees.

The schemes operate by granting an ‘option’ to an employee to receive the right to a number of shares at a future date.

The employee is not a shareholder when an option is granted, but it is a one-way bet for them to become a shareholder in the future, with income tax and national insurance reliefs, providing the qualifying conditions of the scheme continue to be met.

Share schemes: a political timeline

Share schemes were first introduced in their current format by the Labour party, with an Approved Profit-Sharing scheme in the 1970’s, after previously introducing income tax on share options.

The Conservatives then expanded the approved schemes through SAYE and CSOP in the 1980’s, in an era of privatisation, presumably to encourage worker empowerment through equity ownership in SAYE, as well as executives receiving a long-term commitment in bespoke schemes in CSOPs.

Labour then expanded the number of approved share option schemes to four in the 2000’s through adding SIP and EMI.

EMI remains the most tax efficient and flexible of all the schemes, but due to the qualifying conditions it is only applicable to small companies.

Although not a share option scheme, the Liberal Democrats were instrumental in creating Employee Ownership Trusts (EOT) as part of the Coalition Government at the time, which focus on all-employee ownership of trading businesses.

Recent changes and consultations

Over the years, both Labour and Conservatives have changed qualifying conditions and operational elements of all four share option schemes.

Most recently, the Government appears to be looking to more closely align CSOP and EMI, by doubling the CSOP limit to £60,000 and changing the EMI notification period to 6 July following the tax year of grant.

In the 2023 Spring Budget, the Government launched a call for evidence on SAYE and SIP to understand their usage and effectiveness. This prompted speculation that there may be changes to these schemes, but currently nothing has been announced.

What could happen?

Although the consultation may lead to amendments to the qualifying conditions of the tax approved share option schemes, all political parties seem to understand their benefit to employees and businesses.

The tax benefits are significant, and the Government seems to understand they are primarily used to retain talent and maintain loyalty.

With an EMI especially, it is increasingly important to help smaller companies retain the best staff where they may not be able to compete on salary with larger organisations.

Ultimately, most share option schemes only offer the income tax and national insurance reliefs if the options are held for three to five years. Therefore, encouraging employee benefits without an immediate tax cost to the Exchequer is going to be quite appealing to all political parties.

Further information

If you are interested in establishing a share option scheme in your business, or you already have one set up which you would like us to review, please do not hesitate to contact a member of our tax team.