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The Private Intermittent Securities and Capital Exchange System (PISCES) is a new type of stock market that will facilitate secondary trading of private company shares on an intermittent basis. HM Treasury ran a previous consultation on PISCES. Many respondents submitted questions about the tax implications for companies and employees in relation to employees trading their shares on PISCES.
At the Spring Statement, HMRC have published a tax technical note aiming to address the questions raised and provide clarity on the tax implications. The technical note sets out the tax consequences of:
Companies and their employees where employees can trade their shares on a PISCES trading event.
Upon commencement of employee share transactions under PISCES (planned for later in 2025).
We welcome the publication of HMRC’s responses to the questions previously raised.
The technical note confirms that companies can grant new EMI and CSOP options with terms that provide for options to become exercisable on a PISCES trading event. The drafting of the terms of such new EMI and CSOP options will require careful thought, in particular in relation to how much of the option will be capable of exercise on a PISCES trading event (and how much of the option will only become exercisable on a later exit event or other milestone event).
The response in the technical note in relation to existing EMI and CSOP options is disappointing in that it confirms that the use of discretion to permit the exercise of such options will not be tax advantaged. Many existing share options were granted a number of years ago, well before PISCES was envisaged, and hence it was not possible for companies to provide for an automatic exercise right on a PISCES trading event at the time of grant. The response is not explicit about the tax treatment of the part of the option where discretion is not used, so we assume that HMRC’s existing EMI guidance will continue to apply. This existing guidance provides that the use of discretion leads to the whole of the EMI option losing its tax advantages (the part where discretion is used and the balance of the option).
The response states that the government will continue to consider the case for legislating to allow existing EMI and CSOP options to be exercised on PISCES. We would strongly encourage the government to legislate at the earliest opportunity to permit the use of discretion in relation to existing EMI and CSOP options while retaining the tax advantages of these share options. We believe this is essential to avoid the attractiveness of PISCES being significantly diminished and to refrain from hampering the launch of this new means of encouraging periodic liquidity in private company shares.
HMRC’s technical note also states that when considering transactions that have occurred through PISCES between a buyer and seller, HMRC will not seek to disturb the price agreed between the parties, and therefore, where employees are involved, they can rely upon the transaction price as market value. This is welcome clarification from HMRC and provides some certainty for employees participating in transactions via a PISCES exchange, although HMRC note that where transactions occur between connected parties, there may be incentive to transact at other than market value and so such transactions may be subject to review via a compliance check. HMRC also confirm there will be no advance assurance mechanism to agree market values for PISCES events.