Joan Burton (Dublin West, Labour)
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42. To ask the Minister for Finance the estimated cost of the key employee engagement programme up to the end of 2023; if it will be subject to the high-income earner restriction; and if he will make a statement on the matter. [44707/17]

Paschal Donohoe (Dublin Central, Fine Gael)
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In Budget 2018 I introduced the Key Employee Engagement Programme with the objective of supporting SMEs in Ireland in competing with larger enterprises to recruit and retain key employees.  Share options can provide key employees with a financial incentive linked to the success of the company and may improve the attractiveness of an SME employment offer.

The incentive provides that the value of the benefit to the employee on exercise of a qualifying share option will be subject to capital gains tax when the employee subsequently disposes of the shares. In the absence of the KEEP incentive, such gains would be subject to income tax, USC and PRSI at the time of exercise.  This can be a dis-incentive in the case of options for shares of small, unquoted companies, where no ready market may be available on which to sell some or all of the shares in order to fund the tax payable.

It is not possible at this time to project the cost of the Key Employee Engagement Programme to 2023, as KEEP is a demand-led scheme and uptake will depend on the decisions made by qualifying SME companies with regard to the offering of share options to employees, and also on the growth in value of the employer company shares in the period between grant and exercise of the options.  However, having reference to the costs of a similar matured incentive in the UK, it has been estimated that the full-year cost of the Key Employee Engagement Programme will be in the region of €10 million.  It is anticipated that it will take a number of years for this scale of cost to be reached. There will be no immediate cost in 2018 as the share options must, with limited exceptions, be held for a minimum of twelve months before they can be exercised under this scheme.  It is also likely that employees may hold the KEEP share options for a number of years before exercise, as the options must be granted at not less than market value on the date of grant, so a benefit will only arise to the employee if the shares increase in value from that date.

KEEP share options have not been included as a specified relief for the purposes of the high income earners restriction.  That restriction is designed to limit the total amount of "specified reliefs" that a high income earner can use to reduce his or her tax liability in any one tax year such that an effective rate of income tax of approximately 30 per cent is payable.  In the case of KEEP share options, gains arising to the employee on the exercise of the options will receive relief from income tax at the point of exercise, but the gain will subsequently be subject to capital gains tax, currently at 33%, when the employee disposes of the shares.