The Employee Share Ownership Scheme is an initiative that was unveiled in the March 1999 Budget. Its aimed at encouraging employees to take a stake in the company they work for by offering a number of tax incentives.

An employee will be able to invest up to £1500 of his pre-tax salary each year to buy shares in the company for which he works. If he holds on to them for three years hell only be taxed on the amount of salary allocated to those shares.

Any gains that have been made while theyre in the scheme will be exempt from Income Tax Capital Gains Tax CGT and National Insurance Contributions NICs .

However if the employee holds his investment for a minimum 10 years hell receive up to 40 tax relief on that contribution made. The relief applies to each discrete contribution. Which means when you make a contribution in year 2 subject to a maximum £1500 youll have to wait until year 11 to get the full benefit of this relief.

Employee Share Ownership Schemes arent destined to replace existing company pension schemes but they do offer an alternative tax efficient means of investing.

New share ownership scheme from April 2000.

Nowadays all shares held for five years are exempt from both income tax and capital gains tax.