IPSA has welcomed the changes to KEEP contained in the Finance Bill 2022 (Committee Stage Amendments). As anticipated in Budget 2023, a package of measures have been introduced to enhance the Key Employee Engagement Programme (KEEP) in order to boost uptake of the scheme.
The Bill sees KEEP extended to the end of 2025 and also includes several amendments which were originally introduced in Finance Act 2019 but never enacted. These include:
- An extension of the relief to companies that operate through certain group structures
- Provisions to allow part-time employees to qualify for relief
- Provisions to facilitate employees to move between group companies
The requirement for KEEP options to be issued in relation to new shares only will be removed subject to Ministerial Commencement Order.
Other new additions include an increase from €3m to €6m for the company/group limit for issued but unexercised options. This is also welcome news as it gives greater scope and flexibility for companies wishing to avail of the scheme.
In addition, provisions have been introduced which allow companies to buy back/redeem shares acquired by an employee under the KEEP scheme. The current tax rules which allow buy-backs/redemptions to be taxed at capital gains rates are quite complex and require a holding period of five years. Whilst some of the conditions have been relaxed for KEEP participants, other conditions – such as the five-year holding period – have not. Whilst the introduction of these provisions is very welcome, they are disappointing in 2 respects:
- A participant will have to exercise their option and pay for the shares at a time when there is no liquidity available in order to become the owner of the shares
- A participant will then have to hold those shares for five years before they can be redeemed/sold back to the company – a total period of six years from grant of an option to sale of the shares
The requirement for a participant to have cash funds to purchase shares and then wait for a further five years before sale is likely to be unworkable for many employees/employers.
IPSA Chair Marie Flynn said: “The amendments announced to KEEP are significant and largely positive changes which should make the scheme more attractive to those it is designed to help. In particular, the long-awaited Finance Act 2019 changes are extremely welcome to many employers that would not previously have qualified.
“Allowing companies to operate a KEEP scheme and buy back shares from employees at CGT rates is a game-changer for many family companies or those companies where a sale is not envisaged. However, the requirement for employees to have cash funds to purchase the shares and the length of the holding period may be off putting and we would therefore call for any holding period required to commence when the options are granted or to be eliminated fully to ensure that it is practical for companies to avail of these provisions.”