Government announces tax changes to ESS

The government has announced that it will reform the tax treatment of employee share schemes to support start-up companies and boost entrepreneurship.

Specifically, it said it will reverse the changes made in 2009 to the taxing point for options. The change will apply to all companies and will mean that discounted options are generally taxed when they are exercised (converted to shares), rather than when the employee receives the options.
The government said it will also allow employee share scheme options or shares that are provided at a small discount by eligible start-up companies to not be subject to up-front taxation, so long as the shares or options are held by the employee for at least three years. In addition, it said it will update the “safe harbour” valuation tables, which are used by companies to value their options, so they reflect current market conditions.