Joint Share Ownership Plan

Author: John Forde

What is a Joint Share Ownership Plan?

A Joint Share Ownership Plan (JSOP) is an incentive structure designed to provide equity to senior employees without a significant Income Tax charge and enable them to participate in any future growth in value of the company. Future growth in value of the shares should be subject to Capital Gains Tax rather than the higher Income Tax rates.

In economic terms they work in a similar fashion to growth shares (see our separate briefing note on growth shares). However unlike growth shares they do not require a new class of shares to be created so they are also suitable for use with listed companies.

In a JSOP arrangement the employee is invited to acquire, jointly with an employee benefit trust, a given number of shares under the terms of a joint ownership agreement. In accordance with the terms of the joint ownership agreement, when any jointly-owned shares are sold, the proceeds of sale are split between the joint owners so that the employee benefit trust receives their initial market value (plus a small annual increase) and the employee receives the balance representing the growth in value of the shares since the JSOP award was made (less the small annual increase).

What are the potential advantages?

When employees are provided with valuable shares in their employer they are potentially subject to an Income Tax charge (and possibly a national insurance contribution (NIC) charge). This is because they are treated as receiving taxable remuneration to the extent they pay less than full market value for the shares.

For instance, if an employee was issued with £20,000 worth of shares in his employer, and did not pay anything for these shares, he would be subject to Income Tax on £20,000.

To avoid upfront Income Tax and NIC charges, employees need to pay for their shares in full. Unfortunately this means that if the employer was a well-established and valuable business the employee would either have to find a substantial sum of money to invest or bear a significant Income Tax charge.

JSOP planning offers a potential solution to this problem.

When an award is made the employee is only entitled to the future growth in value of the share and is unable to participate in any of the value of the share at that date. However, future growth is inherently uncertain and this will often mean that the right acquired by the employee, even if the business is a well-established and profitable one, has a comparatively modest initial value.

Ensuring that employees are able to afford the full market value of the interest they initially acquire (which is usually a modest amount) means that there should be no tax charge to pay at that point. Future growth in value of the shares should be subject to Capital Gains Tax rather than the higher Income Tax rates.

What sort of company might consider it?

JSOPs tend to be considered only by listed companies.

They are the main opportunity available for senior employees in such companies to acquire shares in the employer at a low cost, and without an initial Income Tax charge, whilst being subject to only Capital Gains Tax in relation to any future growth in value of the shares.

By contrast future profit in relation to non-tax advantaged options and LTIP awards would be subject to Income Tax (and NICs) which would result in a much greater overall tax burden.

JSOPs are considered by listed companies as many of the other opportunities for share plans are not available to them.

The size of listed companies means they would not usually qualify for EMI and the size of the awards proposed would sometimes mean the limits in the various tax advantaged option plan structures would be exceeded (for example, the maximum value of shares that can be put under option is £30,000 with a CSOP or £250,000 with an EMI plan).

JSOPs tend to be much more expensive than other forms of share incentive plans to set up. Specialist valuation advice from a share valuer is also necessary. They are a more complex arrangement and therefore tend to be more suitable for awards to senior management than for forming the basis of an all employee incentive plan.

How could Fladgate help?

Fladgate is well placed to help clients implement JSOPs and we can advise on both the tax and the legal aspects of JSOPs. As already mentioned, separate share valuation advice is required and we can make suitable recommendations.

John Forde, Partner, Fladgate LLP (



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