Revenue Tax Briefing Issue 40, June 2000
Under the current APSS legislation there is a limit on the value of shares which can be appropriated tax-free to an eligible employee in any one year. The normal limit is £10,000 but in certain circumstances, and subject to certain conditions, this limit can be increased to a once off £30,000. This £30,000 limit was provided for in Finance Act 1999 and is intended to cover the situation where shares have to be held for a long period in an ESOT because they are required as security for borrowings and are not consequently available for appropriation to employees until the borrowings have been paid off. One of the necessary conditions is that at least 50% of the shares must have been held in the ESOT and used as security for borrowings by the ESOT for minimum period of at least 5 years from the time the ESOT was established.
Section 24 Finance Act 2000 amends Section 515 TCA 1997 to provide that the Minister for Finance may, by order, and with the prior approval of the Dáil, reduce the minimum period of 5 years.
Section 25 Finance Act 2000 amends Schedule 11 to the TCA 1997, by the insertion of a new paragraph 13A.
This new paragraph makes provision for an individual who has already had an appropriation of shares under the terms of an Approved Profit Sharing Scheme (APSS) from his or her employer company (“first company”) in a particular year, to avail of another appropriation under the terms of a second company’s APSS in the same year, where the “first company” has been taken over by the second company. This will only be allowed in the year of take-over, and will be subject to the existing annual limits of £10,000/£30,000 applying to the aggregate value of the shares appropriated under both schemes.
This new treatment will apply to an appropriation of shares made on or after 23 March 2000, by the trustees of an approved scheme.
A former employee of a company may continue to be a beneficiary of an ESOT established by the company if he or she was an employee of the company at any time in the 5 year period after the ESOT was established, and at all times in that period a minimum of 50% of the shares in the ESOT were held as security for borrowings by the ESOT.
Section 26 Finance Act 2000 amends Schedule 12 of the TCA 1997 to provide that the Minister for Finance, may by order, and with the prior approval of the Dáil, prescribe a shorter period of encumbrance.
Section 51 Finance Act 2000 makes two changes to the Savings-Related Share Option Scheme provisions in Sections 519A, 519B and Schedule 12A to the TCA 1997.
It provides that where a company uses a dedicated trust or subsidiary company (“relevant body”) as part of a Savings-Related Share Option Scheme, to hold “scheme shares” that trust or company will not be liable to Capital Gains Tax (CGT) on the transfer of such shares to employees under the terms of the scheme. Arising from this, the base cost to the employees for capital gains tax purposes of the scheme shares will be the price actually paid by them.
The company will not be entitled to a corporation tax deduction in respect of any expenses incurred by it in enabling the “relevant body” to acquire the scheme shares.
The second change relaxes the “pensionable age” rules of the Savings-Related Share Option Scheme. At present the legislation generally requires that an employee must save for a minimum period of 3 years before exercising options granted to him/her under the scheme. However, provision is made to allow the early exercise of share options granted under the scheme, where the employee reaches “pensionable age” (which currently stands at 66) even though he or she may not have saved for the minimum period of 3 years.
Section 51 changes the “pensionable age” from 66 to any age between 60 and 66, which must be specified by the company in the rules of the Savings-Related Share Option Scheme.