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Growth Shares

Tax-efficient staff incentives

Growth Shares are a special class of shares that enable employees to acquire shares with a low starting value, their eventual value being linked to the company’s future growth. They can be issued to employees, directors (including NEDs), consultants and advisers.

Growth shares can be a tax-efficient way to reward employees. When employees sell their growth shares, they are only liable to pay capital gains tax on the increase in value, rather than income tax on the full value of the shares. This can save employees a considerable amount of money, especially if the shares have increased in value significantly.

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Our expert Employee Share Scheme team are here to guide you through the process as smoothly as possible.

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How Growth Shares Work

Growth Shares mirror the economic effect of an option grant by only providing participants with the benefit of a share of any growth in the company’s value from the time the shares are issued.   The historic value of the company is ignored and the shareholder is only able to participate in the company’s growth between the date the shares are created and an eventual sale or flotation of the company. These shares are often called ‘growth’ shares (because the shares only participate in the ‘growth’ in value of the company).

Growth Shares could be an alternative to options, for example for a company which is not eligible to grant Enterprise Management Incentive Scheme (EMIS) options, or they could be used as part of an EMIS option. plan.


A Company valued at £5 million

A company has a current value of £5 million. A new senior management team is brought in to run the company and is granted growth shares that entitle them to share in 20% of any sale proceeds in excess of £5 million.

Two years later…

Two years later, the company is sold for £7.5 million in cash.

With growth shares, the senior management team will receive (and share) £500,000 as the proceeds of selling their shares.

How are they taxed?

If they had received the proceeds as compensation as part of a long term bonus plan, the £500,000 would be taxed as remuneration. However, as they are receiving the proceeds as holders of growth shares, they are taxed on the basis of capital gains.

Implementation of Growth Shares

For companies considering implementing growth shares, once the class of shares is created they may be issued to participants either through a sale of the shares themselves or by way of a grant of EMI options over the shares in the class (or a combination of the two). The tax and accounting implications of each method should be considered, both for the company issuing the growth shares as well as for the participants acquiring the shares or options over the shares.

Purchase of Growth Shares

Purchasers of growth shares may be able to acquire the shares outright for a very low purchase price, as the value of the growth shares at the date they are issued is small (because the shares do not participate in the historic value of the company).

Option Grant

Options may be granted over growth shares in place of a straightforward subscription and in some circumstances this may be an attractive alternative approach. Where the company is eligible to grant EMI options, this can make it much more likely that the capital gains tax rate on selling growth shares will be 10% under entrepreneurs’ relief.

We would recommend that advice is sought on valuation before growth shares are issued.

What happens if a participant in the scheme leaves?

If you want to use your growth share plan to encourage participants to stay with your company, you could:

  • stipulate that growth shares must be sold for nominal value if an employee leaves; or
  • stipulate that they must be sold on leaving but the price will depend on the reason for leaving (good and bad leaver)

Issues Arising

There are a number of potential issues that should be considered prior to implementing growth shares.


UnlikeEMIS and CSOP, a growth share scheme does not carry specific statutory tax advantages. Although the objective of growth shares is to secure capital gains tax treatment, this treatment cannot therefore be guaranteed.

Enterprise Investment Schemes (EIS)

This is relevant to companies which have investors claiming EIS relief. One of the fundamental conditions for investments from individuals pursuant to an EIS is that the class of shares acquired by an EIS investor is the lowest class (typically, ordinary shares). With their limited capital rights, growth shares may rank below ordinary shares and their creation may result in a disqualifying event for EIS purposes. It is still possible to implement growth shares for a company that has received an EIS investment, but such shares should not have inferior rights compared with ordinary shares.


As the threshold over which growth share holders will share in value will be based on the company’s value at the time holders first acquire them, the implementation of a growth share scheme should be considered to be a ‘one-off’ transaction. This is because if the company grows in value subsequently, any further issue of growth shares may cause immediate income tax issues because they will then have a value. Further, any new grant of options over growth shares may have an impact on the company’s profit and loss account. Therefore, if the value of the company has increased since the creation of growth shares, the company should either increase the price of the growth shares (relative to the growth in value of the company) or create a new class of growth shares (with a revised value threshold).

When it comes to growth shares, our team possesses an in-depth understanding of the complexities involved. We can assist you in structuring growth share schemes that align with your company’s goals and culture. Our services include:

  • Consultation and Strategy: We’ll work closely with you to gain a comprehensive understanding of your business objectives and design growth share schemes that meet your specific needs. Our experts will provide valuable insights and strategies to optimise the allocation and vesting of growth shares.
  • Implementation and Compliance: Our accountants will guide you through the entire process of implementing growth share schemes, ensuring that all legal and regulatory requirements are met. We’ll handle the paperwork, documentation, and reporting, allowing you to focus on what you do best—growing your business.
  • Financial Reporting and Analysis: We offer comprehensive financial reporting and analysis services to keep you informed about the performance and impact of your growth share schemes. Our reports will provide valuable insights into the financial implications and benefits of utilising growth shares within your organisation.
  • Ongoing Support: Our commitment to your success extends beyond implementation. We’ll be by your side, providing ongoing support and advice as your business evolves. Whether you need assistance with employee communications, tax planning, or valuation of growth shares, we’re here to ensure your growth share schemes remain effective and compliant.

Choosing the right accountancy firm to handle your growth share needs is crucial. Here’s why we believe we’re the perfect partner for your business:

  • Experience: With years of experience in the industry, we’ve helped numerous businesses navigate the complexities of growth shares. Our expertise and knowledge will ensure you receive the highest level of service and advice.
  • Tailored Solutions: We understand that each business is unique. That’s why we take a personalised approach, designing growth share schemes that align with your goals and aspirations.
  • Compliance and Accuracy: Our team is well-versed in the latest legal and regulatory frameworks surrounding growth shares. You can rely on us to ensure compliance and accuracy in all aspects of your growth share schemes.
  • Dedicated Support: We’re passionate about your success. Our dedicated team will be with you every step of the way, providing ongoing support and guidance whenever you need it.

Meet our Specialist Employee Share Scheme Team

Nigel Meredith FCA RI
Senior Partner
Matthew Morris FCCA CTA
Tax Partner
John Hegney FCCA RI
Audit Partner
Jack Meredith ACA
Chartered Accountant