Jurisdiction(s):
United Kingdom

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Key definition

Employee shareholder definition

What does Employee shareholder mean? Employee shareholder (ESS): In practice, this describes an individual who agrees to hold shares in their employer in exchange for giving up certain statutory employment rights. In Great Britain, the status is defined in the Employment Rights Act 1996 (ss.205A–205K), introduced by the Growth and Infrastructure Act 2013. From 1 September 2013 to 30 November 2016 employers could agree employee shareholder status with staff. New agreements are no longer available, but existing ones continue. An employee shareholder must be given at least £2,000 of shares in the employer (or its parent), free of charge, with a written statement...

Archived precedent: Employee Shareholder (ESS) letter agreement with independent adviser’s certificate, noting abolition of ESS income tax, NICs and CGT reliefs from December 2016 (England and Wales)

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Precedents

Archived: The ability to offer tax-favoured Employee shareholder Shares or ESS (commonly used in Private equity company arrangements) has now been removed

In the Autumn Statement 2016, the government confirmed that the tax concessions linked to ESS would be withdrawn. The changes remove the following in respect of employee shareholder shares:

income tax and NICs relief on the first £2,000 of employee shareholder shares allotted to an individual
the capital gains tax exemption applying to all, or part, of those ESS shares
the rule that treated consideration paid by a company on a buy-back of employee shareholder shares as something other than a distribution in the shareholder’s hands

These withdrawals apply to any employer shareholder agreements entered into on or after 1 December 2016. However, where an individual had received independent advice about entering into an employer shareholder agreement before 23 November 2016, they could still complete the agreement before 1 December 2016 and continue to benefit from the favourable income tax and CGT treatment...

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Web page updated on 22/05/2026

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