The most tax-advantaged share plan for all employees ever introduced in the UK was announced today.

This will be a modern, flexible plan designed to encourage companies big and small to offer shares to all their employees. Employers will be able to set up the kind of plan that best suits their needs.

The Chancellor said:
“This reform is designed to create both a high investment economy and a wealth owning democracy open to all.
“This is the most generous all employee shares incentive a British Government has ever introduced.”

The Secretary of State for Trade and Industry, Stephen Byers said:
“This new scheme will allow companies to reward employees who are prepared to take a stake in the future.
“Wider share ownership is good for companies and staff. Employees can now contribute to the development of the company and share in the success they have helped to create.”
The plan will eventually cost around #400 million a year and it is expected that around 625,000 employees will own shares in their companies for the first time.
Under the proposals announced today all shares in the plan, held for five years, will be completely free of tax, National Insurance (NICs) and capital gains tax.

The details of the new plan are as follows:

under a free share plan:
– employers can give up to #3,000 of shares to employees free of tax and NICs; and
– employers will be able to award some or all of these shares to employees for reaching their performance targets – rewarding personal, team or divisional performance.

under a partnership share plan:
– employees will be able to buy shares out of their pre-tax monthly salary or weekly wages up to a maximum of #1,500 a year, free of tax and NICs.

matching shares:
– employers can match partnership shares by giving employees up to 2 free shares for each partnership share they buy.

more generally:
– employees who sell their shares will be liable to capital gains tax only on any increase in the value of their shares after they come out of a plan;
– free and matching shares must normally be kept in the plan for at least three years – employees can take partnership shares out of the plan at any time;
– shares must come out of the plan when employees leave and some employees may lose their free and matching shares if they leave their job within three years of getting the shares;
– dividends paid on the shares will be tax free, up to annual limits, provided they are used to acquire additional shares in the company; and
– employers will get a deduction in computing their taxable profits for the costs of setting up and running the plan and for the market value of any free and matching shares used in the plan.

Under the proposals announced today the tax treatment for all types of shares within the plan is aligned so the plan will be simpler to operate and easier to communicate:
– employees who keep their shares in a plan for five years pay no income tax or NICs on those shares; and
– employees who take their shares out of a plan after three years will pay income tax and NICs on no more that the initial value of the shares – any increase in the value of their shares while in the plan will be free of income tax and NICs.

The Government intends that legislation will be introduced in Finance Bill 2000. The Inland Revenue will comment on draft documentation for new plans after publication of the Bill and will be developing a fast track approvals process.


1. The Inland Revenue are today issuing draft legislation and a commentary. Copies can be downloaded from the Inland Revenue’s website: http://www.inlandrevenue.gov.uk/shareschemes

or obtained by post from:

Scott Johnson
Room 110
New Wing
Somerset House
London WC2R 1LB

Comments are welcome and should be submitted by 28 January 2000.

2. In Budget 99 the Chancellor announced his intention to introduce a new all-employee share scheme in 2000 as an important step towards his target of doubling the number of companies offering shares to all their employees.

3. An initial blueprint was set out in a technical note published by the Inland Revenue in March. The Inland Revenue have been working with an advisory group of share scheme practitioners, representatives of business and the trade unions and a leading academic to draw up the detailed rules of the plan. Over 100 responses to the technical note were taken into account, together with information and representations received from other interested parties. These views have been carefully considered and are reflected in the changes announced today.

4. At present some 1,750 companies offer shares to all their employees and around 2 million employees participate in existing Inland Revenue approved schemes. These schemes cost the Exchequer in the region of 1 billion pounds a year.

5. Ministers have said that no decisions about the existing Inland Revenue approved schemes will be taken until everyone has had the opportunity to comment on the draft legislation which is published today.

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