An important issue for business owners is holding on to and motivating the right people. Fortunately share option schemes offer a tax efficient way of doing this.
A share option is the right to buy a certain number of shares at a fixed price, sometime in the future. Employees can generally exercise their options - buy the shares - after a specified period, known as the vesting period. You can make the granting and exercising of options dependent on reaching certain targets, such as sales targets.
There are a number of different Share Option Schemes that a company can implement including:
When an employee exercises their options, it's at the price fixed at the date of grant, i.e. when the options were given to the employee, regardless of the prevailing market price. They can then keep the shares or, if the market price is higher, sell them at a profit.
An employee share scheme can help you to transfer ownership to those working in the business, e.g. to family or to enable a management buy-out. You can sell your company gradually and obtain tax relief while doing this. The tax relief available depends on the share scheme, e.g. deferred capital gains tax on the sale of shares through an HM Revenue & Customs approved Share Incentive Plan.