Glossary · UK
What is Growth Shares?
A class of company shares issued to employees above the current market value, so that the employee only benefits from future growth and pays capital gains tax rather than income tax on any gain.
Full Definition
Growth shares are a tax-efficient equity incentive tool used by private companies to reward employees and key management. They are issued at a price above the current value of the company -- known as the "hurdle rate" -- meaning that at the time of issue the shares have minimal or no current economic value. Because the shares are issued at or above market value, there is no income tax or National Insurance liability on grant. The employee's benefit arises only if the company grows in value above the hurdle, at which point they share in that future growth. Gains above the hurdle are subject to capital gains tax rather than income tax and NI, which is a significant tax saving. In 2026/27, the CGT rate on qualifying business assets under Business Asset Disposal Relief (BADR) is 14% (rising to 18% from April 2026), compared to income tax rates of up to 45%. Growth shares do not require HMRC approval (unlike EMI or CSOP options) but the hurdle valuation should be agreed with HMRC's Shares and Assets Valuation (SAV) team to give certainty. They are particularly popular with companies that cannot qualify for EMI options (e.g. due to the gross assets or employee count limits).