Employee share schemes - nil and partly paid shares
Following the review announced in the 2007 Budget, HMRC have proposed
changes to the anti-avoidance provisions applying to nil and partly paid
Previously, where nil or partly paid shares were disposed of, employees were subject to income tax on the amount of a 'notional loan' equal to the amount of the outstanding unpaid amount at the time of disposal. This meant that employees could suffer income tax even if they subsequently paid up the full market value of the shares out of the sale proceeds or if they sold the shares to a purchaser who assumed the responsibility to pay up further instalments.
Additionally, where an employee holds nil or partly paid shares and receives further shares in proportion to their existing holding as a result of a rights or bonus issue, previously an income tax charge could arise in relation to the additional shares notwithstanding that no additional value was received.
HMRC have confirmed that these potential charges will be removed for transactions taking place on or after Royal Assent to the Finance Act 2009.
In practice the current provisions do not affect many employee share arrangements. However the proposed changes which remove legislative anomalies are welcome.