Finance Act 2014 gives effect to the increases in scheme limits announced in December 2013, and makes a number of changes to the provisions governing tax-favoured schemes as summarised below :

SIPs:

(a) Partnership and dividend shares may be subject to a provision requiring the shares to be offered for sale (e.g. on leaving) provided that the price obtained is at least the amount used to acquire the shares or, if less, their market value at that time (see further below);

(b) a SIP must not provide cash to employees as an alternative to shares and must not provide benefits to employees otherwise than as provided in Schedule 2, ITEPA 2003

(c) The changes referred to in (b) have effect in relation to existing approved plans only if and when there is an alteration made to a ‘key feature’ of the plan or plan trust after 6 April 2014. The change referred to at (a) above has effect from that date and existing plans have effect with any modifications needed to reflect such changes.

SAYE option plans:

(a) to qualify for tax advantages, an SAYE share option plan must only provide benefits for employees and directors in the form of share options, and only in accordance with Schedule 3, ITEPA. It must not provide cash as an alternative to share options or shares which might otherwise be acquired upon the exercise of share options;

(b) there are new requirements in relation to any provision in the scheme for making adjustments to share options to take account of a variation in share capital;

(c) there are changes to the requirements as to when ‘scheme employment’ is deemed to end;

(d) if a new SAYE option may be exercised after death, it is to be capable of being exercised at any time within the period of 12 months after the date of death;

(e) a scheme may provide for SAYE options to be exercised within a limited (20 day) period after a corporate event (e.g. a change of control consequent upon a takeover or similar event, including a “non-UK company reorganisation arrangement”) if, after such event, the shares acquired will not satisfy the statutory requirements. A scheme may also provide that an SAYE option may be exercised within 20 days before such an event (but conditional upon the event occurring) on the basis that such exercise is then treated as having taken place immediately after the event occurs. So, if in such circumstances optionholder can only receive cash for his option shares, no tax will normally be charged even if the option is then exercised within 3 years of grant and the shares acquired would not be in an independent company;

The change referred to in (a) above has effect in relation to schemes approved before 6 April 2014 only if, and when, there is an alteration to a ‘key feature’ of the scheme.

CSOPs:

(a) The purpose of a CSOP must be to provide benefits for employees and directors in the form of share options and must not provide benefits otherwise than in accordance with Schedule 4, ITEPA. In particular, it must not provide cash as an alternative to options or shares which might otherwise be acquired upon the exercise of options;

(b) the following terms of a CSOP option must be stated at the time of grant :

• exercise price;
• number and description of option shares;
• restrictions to which they are subject;
• times at which the option may be granted (in whole or in part); and
• circumstances in which it will lapse or be cancelled (in whole or in part) including any conditions to which the exercise is subject.

These terms may be varied after the option is granted but the exercise price may only be varied as provided in paragraph 22 of Schedule 4 to ITEPA and the number or description of option shares can only be varied by that means or by way of a mechanism stated at the time of grant. A variation to any other such term may likewise only be by way of a mechanism stated at the time of grant. Paragraph 22 now authorises a variation only if it secures that the total market value of the option shares immediately thereafter is “substantially the same” as it was immediately before, and that the total exercise price is likewise “substantially the same” after as it was before.

If a CSOP option granted on or after 6 April 2014 may be exercised after the optionholder’s death it must now be capable of being exercised at any time within the period of 12 months after death (and an existing CSOP is deemed to be modified to take account of this change in relation to options granted after that date).

EMI options:

Now that EMI option grants must be notified to HMRC (within 92 days of grant) electronically, rather than on Form EMI 1, the declaration required to be made by the grantee that he or she satisfies the working time requirement, must be made otherwise, but still in writing. In practice, if the option is granted by the execution or signing of a bilateral agreement, the declaration might most easily be included as a term of the option agreement. If it is granted unilaterally by the company, the declaration may be a term of the form of acceptance which the employee will normally be expected to sign and return to the company. Either way, it must be retained by the employer company (which will not necessarily be the same as the grantor company) which must keep it safe pending a request from HMRC for it to be produced within 7 days. A copy must also be given to the grantee within 7 days after the declaration is signed. Care is needed to ensure that this new requirement, which takes effect in relation to EMI options granted since 6 April 2014, is met : it imposes an additional administrative burden on the employer company. Particular care is required if the option is to be granted by an employees’ trust or other shareholder.