Budget Introduces Share Incentive for SMEs

Budget 2018 saw the introduction of the Key Employee Engagement Programme (KEEP), an SME-focused share option incentive scheme. This incentive will allow cashstrapped SMEs the opportunity to offer share options to employees in a tax-efficient manner. To date, share options in unquoted companies have been unappealing to employees from a tax perspective. Currently, when an employee chooses to exercise options, an upfront income tax liability arises at the date of exercise on the difference between the market value of the shares on that date and the price paid for the options.

Often, these shares would have no available market at the time of exercise and the employee would be left with the unpalatable choice of borrowing to fund the tax charge or letting the options lapse. In a positive move, the gains arising on the exercise of KEEP share options will be liable to capital gains tax on disposal, rather than income tax, USC and PRSI on exercise. The incentive will be available for five years for options granted between 1st January, 2018, and 31st December, 2023. In addition to the cash flow advantage gained, there is also a real tax saving of between 15.75% and 19%, the greater saving applying to those on the top USC rate.

Source: PwC