Hold-over relief on personal gifts of shares to employees

Fri 26 Sep 2014

If the owner of shares in a company gives shares to an employee of the company that will usually be regarded as taxable income of the employee subject to the rules charging receipt of employment-related securities (ERS).

It must also be admitted that personal gifts of shares to employees are a rarity but they do happen, although in such cases it will rarely be possible to argue that the gift falls within the exception for arrangements made personally in the normal course of family, domestic or personal arrangements (ITEPA s 71).

Donor may claim hold-over relief 

The donor is giving the employee shares and is not receiving consideration in return. (This would not be the case if there was any contract or other arrangement where the ‘gift’ was the employee’s entitlement as a reward for service.) Therefore TCGA 1992 s 17 deems the transaction to take place at market value.

However, on a gift TCGA s 260 (disposals to or from trusts) or s 165 (gifts to non-trustees) is available to reduce the deemed consideration to such as results in neither a gain nor a loss.

As ever when considering gift hold-over relief, whether it is beneficial depends on the amount of the gain involved and the potential availability of other reliefs and the annual exemption.

Recipient employee’s base cost is not reduced

Ordinarily the recipient’s base cost would be reduced by the amount of the held-over gain but in cases involving employment-related securities (ERS) TCGA 1992 s 119A overrides s 165 and provides that the base cost is the amount of income, attributable to the shares, on which the employee was taxed.

Corporation tax deduction

Although the shares are provided by an individual, the company can also claim a CT deduction for the full value of the shares that is taxable on the employee as income (see CTA 2009 s 1008, s 1016 re qualifying shares and BIM 44000 et seq).