Issue link: https://htpgraphics.uberflip.com/i/246991
Tax Issues Section 7 If the shares which you, as a researcher, acquire in the company are "restricted shares" then you may be subject to a charge to income tax in the future. If you derive any financial gain from your shareholding, the overall effect of the "restricted share" legislation is to increase the proportion of such gain which falls within the charge to income tax rather than capital gains tax. The highest rate tax payer pays income tax at a current rate of 50%, whereas, a higher rate capital gains tax payer pays tax at a current rate of 28% and taper relief and the annual exemption may significantly reduce the overall effective rate of tax. A future charge to income tax on restricted shares may arise when the shares are sold or the restrictions attaching to the shares cease to apply. A proportion of the value of the shares at this point in time may be subject to income tax. Such proportion is equal to the proportion of the market value of the shares which has been affected by the restriction or restrictions. If you are acquiring restricted shares you should seek specific legal advice. In particular, it is possible for an employer and an employee jointly to elect that the shares are deemed not to be restricted for the purposes of the tax legislation. Such an election may increase the initial charge to income tax on the acquisition of the shares, but the researchers' tax exemption may mean that there is no such tax. You pay capital gains tax on the increase in the value of these shares when the shares are sold and (if you have not made such an election) when the restrictions cease to apply. Share Options The issuing of shares in the company at nominal value (as described above), involves giving away an equity stake in the company immediately. This may not be suitable in all situations as it can lead to dilution in control of the company. An alternative is to use share options. A share option granted to an employee will give the employee the right at a future date to acquire a specific number of shares in the company. This may be upon the occurrence of a certain event, eg a sale or takeover of the company. This will have the benefit of incentivising the employee without actually giving any of the equity away immediately. In other words, if the employee leaves before he or she is entitled to exercise the option the option will lapse and there will be no 43