Revenue approved share schemes
Approved Profit-Sharing Schemes (APSS)
If your employer operates an APSS, they may allocate Income Tax free shares to you, provided you meet certain conditions.
Main features
Your employer can allocate shares to you up to a maximum annual limit of €12,700. The shares allocated to you must be held in a trust set up by your employer. The shares must be held in the trust for a specified period of retention (generally two years). If you leave the shares in the trust for three years, you will be exempt from Income Tax.
Your employer may allow you to use your annual bonus to buy shares under an approved scheme.
You can find more information about how the APSS operates in Approved Profit Shares Scheme (APSS).
Taxation of APSS
You must pay Universal Social Charge (USC) and Pay Related Social Insurance (PRSI) on the value of the shares when they are appropriated to you. Your employer will make the necessary deductions through payroll and pay the tax directly to the Collector-General.
Shares disposed of before three years
You may instruct the trustee to sell or transfer your shares after two years, but before the end of the three years.
If you do, you must pay Income Tax at the standard rate (20%) on the original market value of the shares. You must pay this tax to the trustee before the transfer takes place. The trustee will remit this amount to Revenue on your behalf. This will be set against your final tax liability on the disposal or transfer of your shares.
You must pay Income Tax at your marginal rate on the lower of the:
- original market value
- and
- disposal proceeds
- or
- shares’ market value at the date of transfer (in the case of a transfer).
You will not have to pay additional USC and PRSI, as these will already have been paid at the time the shares were appropriated to you.
If your final liability is higher than the tax you paid to the trustee, then you must pay this additional amount to Revenue under the self-assessment system. You must include details of the transaction in your tax return.
Shares disposed of after three years
If you leave the shares in the trust for three years, you will be exempt from Income Tax. You may, however, be liable to Capital Gains Tax (CGT).
CGT
If you dispose of your shares, you may be liable to CGT. You must report this disposal to Revenue even if no tax is due. Your employer will not deduct any tax or report the disposal for you.
When you calculate the chargeable gain, the market value of the shares at the date of appropriation is generally used as your cost of acquisition.
- Example 1
Adam is an employee of Mon Ltd. On 01 January 2018, 1,000 shares are appropriated to him. The market value of the shares at that date is €3,000 (€3 per share). He will pay USC and PRSI on €3,000.
On 31 March 2021, Adam instructs the trustee to sell the shares for €5,000 (€5 per share).
As Adam disposed of his shares after more than three years, he does not pay Income Tax on the value of the shares.
Adam must pay CGT on the increase in value of the shares (€2,000).
- Example 2
Rosa is an employee of Mon Ltd. On 01 January 2018, 1,000 shares are appropriated to her. The market value of the shares at that date is €3,000 (€3 per share).
On 31 March 2020, Rosa instructs the trustee to sell the shares for €2,000 (€2 per share).
As Rosa disposed of her shares before the end of the three years, she must pay Income Tax, PRSI and USC on the €2,000. (The shares’ value at the date of sale is less than original market value of €3,000.)
Next: Employee Share Ownership Trusts (ESOTs)