Restricted Shares

Q. I have been offered shares in the company that I work and have been told that these qualify as “Restricted Shares”. What are restricted shares and does this restriction affect their taxation?  

26th April 2018

A. Restricted shares are shares acquired by an employee where there is a “clog” or restriction on the disposal of those shares. Under the terms of a written agreement, the shares are held in a trust established by the employer for the benefit of the employee for a specified period of at least one year. During this period the employee is restricted from transferring or selling the shares under any circumstances.

To take account of the restriction placed on the employee from disposing of the shares, instead of charging income tax on the full amount of the difference between the market value of the shares at the date of acquisition and the price (if any) paid by the employee, the amount which is liable to income tax is reduced by between 10% and 60% depending on the period of restriction e.g. a restriction of one year leads to a 10% reduction, two years is 20%

If the restriction is removed at any stage before it was due to expire then the income tax charge must be recalculated and any additional taxes paid.

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