479 Relief for new shares purchased on issue by employees

Summary

This section gives an employee or director a deduction for income tax purposes up to a lifetime limit of €6,350 in respect of money subscribed by him/her for new ordinary shares in the company with which he/she is employed or for new ordinary shares issued by the holding company of the employing company, where the employing company is a 75 per cent subsidiary of the holding company. The €6,350 does not have to be invested all at once and can be spread over a number of years of assessment.

The company issuing the shares must be one whose business consists wholly or mainly of the carrying on in the State of one or more trades or a holding company for such companies. A company which is both a holding company for such subsidiaries and a trading company also qualifies. The shares must be new ordinary shares issued at full market value which are fully paid up and not subject to any restrictions beyond restrictions which apply to all shares in the company of the same class.

To qualify for the relief, the employee or director must take up new shares on issue and must hold them for a period of 3 years. Provision is made for a claw back of the relief given where the shares are disposed of within 3 years of their acquisition.

An income tax deduction is not allowed in respect of shares that are subscribed for on or after 8 December 2010 (Budget day).

Details

Definitions and construction

(1)(a) “director” has the same meaning as in Chapter 3 of Part 5. This is the definition which applies to the benefit in kind provisions and includes a person in accordance with whose directions the directors of the company are accustomed to act.

“eligible employee” is a director or employee of a qualifying trading company or, in the case of a qualifying holding company, a director or employee of that company or of a 75 per cent subsidiary of that company.

“eligible shares” are new shares forming part of the ordinary share capital of a qualifying company which —

• are fully paid up,
• throughout the period of 3 years beginning with the date on which they are issued, carry no present or future preferential right to dividends or to the company’s assets on its winding up and no present or future preferential right to be redeemed,
• are not subject to any restrictions other than restrictions which attach to all shares of the same class, and
• are issued to and acquired by an eligible employee in relation to a company at not less than their market value at the time of issue.

“holding company” is a company whose business consists wholly or mainly of the holding of shares or securities of trading companies which are its 75 per cent subsidiaries.

“market value” has the same meaning as in section 548 (that is, it is the price which the shares would fetch on sale on the open market).

“qualifying company” is a company which, at the time the eligible shares are issued, is incorporated in the State, resident in the State and not resident elsewhere, and either a trading company or a holding company.

“trading company” is a company whose business consists wholly or mainly of the carrying on wholly or mainly in the State of one or more trades.

“75 per cent subsidiary” has the same meaning as in section 9 as that section is applied for the purposes of group relief by paragraphs (b) and (c) of subsection (1) of section 411 (that is, it is extended to include industrial and provident societies).

(1)(b) References to a disposal of shares includes references to a disposal of an interest or right in or over shares, and an individual is to be treated as disposing of any shares which under section 587 he/she would be treated as exchanging for other shares.

(1)(c) Shares are not treated as belonging to the same class unless they would be so treated if dealt in on a stock exchange in the State.

Relief

(2) The relief applies where an eligible employee in a qualifying company subscribes for eligible shares in that company. The relief takes the form of a deduction from total income for the year of assessment in which the shares are subscribed for, and is subject to a lifetime cap of €6,350. Shares in the employing company do not have to be subscribed for all at once. This is subject to subsection (9) which disallows relief where eligible shares are subscribed for on or after 8 December 2010.

Claw back of relief

(3) A claw back of relief occurs where, within 3 years of acquisition, the eligible shares are disposed of by the eligible employee or where he/she receives, in respect of the shares, any money or money’s worth which is not regarded as income in his/her hands for income tax purposes. There is no claw back after the third anniversary.

Shares

(4) The shares made available to employees must not be special issue shares created for the purpose of the relief. This measure is necessary to ensure that employees get genuine shares in the company which have an equal standing with shares issued to non-employees. Accordingly, except where the company has one class of shares only, the majority of the shares in the same class as the eligible shares must be shares other than eligible shares and shares held by persons who acquired them in pursuance of a right conferred on them or of an opportunity afforded to them as a director or employee of the company or any of its 75 per cent subsidiaries.

Identification of shares

(5) To determine which shares have been disposed of where shares have been acquired at different times the provisions of section 498 are to be applied. Where the employee has other ordinary shares in the company in addition to eligible shares within the meaning of this section, any disposal (except where the disposal is one to which section 512(2) applies) is treated as made firstly out of eligible shares and only when no eligible shares are left out of the other shares. Eligible shares acquired earlier are to be regarded as disposed of first so that the employee suffers claw back of relief where eligible shares are concerned only when all such shares over 3 years in issue have been cleared and only shares acquired within 3 years remain for identification.

Company reconstructions and reorganisations

(6) Where, in consequence of company reconstructions or reorganisations, the eligible shares purchased by an employee are replaced by new shares or securities, the new shares or securities are to stand in place of the eligible shares and are to be dealt with in the same manner. Accordingly, where there is a transaction in relation to an employee’s eligible shares (called the “original holding”) which, for capital gains tax purposes, would result in a new holding (as defined in section 584) being equated with the original holding, then, for the purposes of subsection (3) —

• the new holding is to be treated as shares in respect of which relief has been given,
• the transaction is not to be treated as involving a disposal of the original holding (and so constituting a disposal for claw back purposes),
• the consideration for the disposal of the original holding to the extent that it consists of the new holding is not to be treated as money or money’s worth, and
• the disposal of the whole or part of the new holding is to be treated as a disposal of the whole or a corresponding part of shares in respect of which relief has been given under the section.

The scope of the transactions envisaged includes bonus issues, rights issues, alterations of rights attaching to a share class, conversion of securities, including exchanges, and company amalgamations and take-overs.

Capital gains tax

(7) The normal rules apply for capital gains tax purposes in determining the acquisition cost of eligible shares when sold, that is, expenditure which qualified as a deduction in computing income for income tax purposes is not allowed as a deduction for capital gains tax purposes.

Anti-avoidance

(8) Shares qualifying for relief under this section must be issued for bona fide commercial reasons and not as part of a tax avoidance scheme.

Termination of relief

(9) An income tax deduction is not allowed in respect of eligible shares that are subscribed for on or after 8 December 2010.

Relevant Date: Finance Act 2021