Under general tax law, the gain arising from shares acquired as a result of employee share options is chargeable partly to income tax – on the difference between the price paid for the shares and the market value at date of exercise of the option – and partly to capital gains tax – on the difference between the market value at the date of exercise and the proceeds received on any subsequent sale of the shares.
The case had been made to me that the gain from such shares was more in the nature of a capital receipt than income and should, therefore, be charged to capital gains tax only. This treatment, it was argued, would help companies recruit and reward highly skilled and internationally mobile staff.
Accordingly, in this year's Finance Act, after extensive consultation with interested parties, I introduced a scheme providing for such tax treatment provided certain conditions were satisfied.
For a scheme to qualify for this tax treatment, at least 70% of the options granted must be available to all employees on similar terms and the balance of up to 30% may be provided to key employees. There is also a minimum retention period of three years between the time the option is granted and the time the shares are actually sold by the individual.
The all employee-similar terms rules are a feature of the other tax relieved employee share schemes. It was understood that the scheme as introduced would meet its objectives.
I understand from the Revenue Commissioners that to date two schemes out of 50 applications have been approved for the purpose of the relief and it is estimated that 4,101 individuals within these schemes could benefit from the new relief.
Details of the cost of the scheme will not be available until early next year when the approved schemes must file returns. As I mentioned to the Deputy previously, as with all tax reliefs, I will be monitoring the operation of this particular scheme.
