PISCES and tax 

 

PISCES comes with a genuinely attractive tax profile, as well as some considerations that are easy to overlook.

The stamp duty exemption reduces the cost of buying shares through a trading event compared to a conventional private sale.

EMI and CSOP options can now be exercised on a PISCES platform without losing tax-advantaged status, opening a path to liquidity that simply didn't exist before.

The less obvious side covers readily convertible assets, National Insurance, corporation tax deductions, and valuations, and the picture differs depending on whether you're the company running the event, an employee holding options, or an investor.

This guide sets out the key tax implications across the board. It's based on HMRC's technical note on PISCES, the FCA's final PISCES rules, and the PISCES Sandbox Regulations 2025.

This is not tax advice. The specifics of your position will depend on your own circumstances and it's worth taking professional advice before making decisions.

PISCES tax considerations

1. Stamp duty
2. Corporation tax
3. Income tax & National Insurance
4. Capital gains tax
5. Share scheme implications
6. Filing and compliance

1. Stamp duty

The most straightforward tax benefit of PISCES is the exemption from stamp duty and Stamp Duty Reserve Tax (SDRT).

Ordinarily, buying shares in a private UK company triggers stamp duty at 0.5% of the consideration, or SDRT at the same rate for electronically held shares. On a £500,000 purchase, that's £2,500; across a trading event involving multiple buyers, it adds up.

The Private Intermittent Securities and Capital Exchange System (Exemption from Stamp Duties) Regulations 2025 exempt all qualifying PISCES transfers from stamp duty and SDRT, effective 3 July 3 2025, mirroring the approach already taken for AIM.

It also removes the requirement for brokers to submit stock transfer forms to HMRC, cutting admin on both sides.

One boundary worth noting is that the exemption only applies to transfers made through a PISCES trading event. Private share sales between the same parties, conducted outside the platform, don't qualify.

2. Corporation tax

PISCES is not a recognised stock exchange for tax purposes, as HMRC confirmed in ERS Bulletin 59.

That matters because corporation tax relief on gains accruing to employees on option exercise is generally only available where shares are in an independent company, one listed on a recognised stock exchange, or one controlled by a company listed on a recognised stock exchange that isn't a close company.

A company running a PISCES event may therefore not be able to claim that deduction in the usual way, which is worth factoring into the cost-benefit analysis and taking advice on.

It also means PISCES shares will need to be flagged as not listed on an RSE on the company's annual ERS return.

3. Income tax & National Insurance

The readily convertible assets question. This is the area most likely to catch companies off guard, and it's worth understanding carefully before a PISCES event is announced.

What are readily convertible assets?

When an employee acquires shares in their employer, whether through a direct grant, a share scheme, or by exercising options, the tax treatment depends on whether those shares are classified as "readily convertible assets" (RCAs).

If shares are RCAs, any gain arising on acquisition is treated as employment income. That means the company must operate PAYE, withholding income tax and employee National Insurance contributions at source. The employer also becomes liable for employer's Class 1 NIC. Combined, the charge can reach up to 47% of the gain.

If shares are not RCAs, income tax is paid by the employee via self-assessment instead, and no Class 1 NIC arises for either party.

For most private company shares, the RCA question has historically turned on whether ‘trading arrangements’ exist. In other words, whether there's a ready market for selling the shares.

The RCA position

The government has published a tax technical note confirming that shares capable of being traded on a PISCES platform will be RCAs for employment tax purposes, even if a trading window is not open at the time an employee acquires the shares, and even where it is merely anticipated that the company will be admitted to PISCES.

HMRC's policy paper gives the following examples of scenarios likely to be viewed as RCAs in the context of PISCES:

• Shares acquired at a time when arrangements exist for them to be traded on a PISCES platform will be viewed as RCAs, even if a trading window is not open at the time of award.
• Shares acquired in anticipation of the company being admitted to PISCES, even if admission is not guaranteed, will also be viewed as RCAs.

There is, however, a sensible carve-out: if a company's shares have previously been admitted on a PISCES platform but are not admitted at the relevant time, and provided that no other trading arrangements exist and no trading arrangements are likely to come into existence, the shares would not be RCAs.

Trading arrangements would be considered as likely to come into existence if the company has taken steps to prepare for a subsequent PISCES trading event.

What this means in practice

For companies with existing share schemes that haven't yet run a PISCES event, the implications are significant.

The moment arrangements exist, or are anticipated, for shares to be traded on PISCES, shares issued to employees under non-tax-advantaged arrangements may become RCAs. At that point, any gain on acquisition becomes subject to PAYE and NICs.

For tax-advantaged schemes like EMI and CSOP, the position is different because the whole point of those schemes is that the gain on exercise is not treated as employment income. More on that below.

Companies should review their share scheme arrangements carefully before announcing any PISCES participation, and ensure payroll processes are in place to handle PAYE withholding where needed.

4. Capital gains tax

For sellers, whether they are founders, early investors, or employees who've exercised their options and now hold shares, a PISCES sale is a disposal, and the normal CGT rules apply.

PISCES does not create a special CGT regime. The tax you pay depends on the gain you make, your other income in the year, available reliefs, and the current CGT rates.

Current CGT rates

For the 2026/27 tax year:

• Basic rate taxpayers pay CGT at 18% on gains within the basic rate band, and 24% on gains above it.
• The CGT annual exemption is £3,000 for individuals. Gains within this amount do not incur CGT.

5. Implications for EMIs & CSOPs

PISCES has been designed to work alongside both schemes, but the mechanics require attention. For new grants, include PISCES as a specified exercise event from the outset.

For existing EMI and CSOP schemes granted before 6 April 2028, amendments can be made from 15 May 2025 to include a PISCES sale as an exercise event without losing tax-advantaged status, treated as if PISCES had been included from the original grant date. Option holders must consent, the statutory conditions must be met, and legal advice is worth seeking before making changes.

Business Asset Disposal Relief

For EMI shareholders in particular, Business Asset Disposal Relief (BADR) can significantly reduce the CGT rate on qualifying disposals, up to a lifetime limit of £1 million. The rate of CGT applying to gains on which BADR is available will be 18% on disposals on or after 6 April 2026.

The key conditions for BADR on EMI shares are that the shares must have been acquired through an EMI option and held for at least two years. Given that PISCES creates a structured route to disposing of those shares, the interaction between BADR eligibility and the timing of a PISCES trading event is worth planning carefully.

EMI 'disqualifying event'

One nuance worth flagging: because PISCES is not a recognised stock exchange, the usual rules around EMI exercise on a ‘disqualifying event’ don't apply in the same way.

Employees should not assume that exercising options through a PISCES event is identical to a sale on a public market. The tax treatment depends on how the option agreement is drafted and whether the statutory conditions are met, which is precisely why getting the documentation right from the start is so important.

6. Filing and compliance

A few practical points on compliance for companies participating in PISCES:

• ERS annual return. For the purposes of Employment Related Securities returns, which must be filed annually by July 6 following the tax year end, companies with shares admitted on PISCES must indicate that the shares are not listed on a recognised stock exchange. In practical terms, when completing the ERS end-of-year return, the answer to the question "are they listed on a recognised stock exchange?" is "No". There are no other changes to reporting requirements as a result of PISCES.

• PAYE obligations. Where shares are RCAs, the company must operate PAYE on any employment income arising at acquisition, so payroll processes need to be in place before any shares are issued or options exercised, particularly where shares are moving from non-RCA to RCA status as PISCES participation begins.

• Option agreement review. Existing EMI and CSOP agreements should be reviewed before any PISCES event is announced, to determine whether amendments are needed and whether they can be made within the statutory framework.

• Share scheme valuation hygiene. PISCES trades create real market evidence. A valuation obtained well before a trading event may not reflect the price at which shares actually traded and the gap could attract HMRC scrutiny. Keep valuations up to date.

• Investor due diligence. The "buyer beware" principle applies. The stamp duty exemption reduces the cost of participation, but substantive tax obligations on any gains remain.

The tax picture around PISCES is broadly positive, but the RCA rules, the corporation tax deduction question, and the interaction with existing option agreements all require careful thought before a trading event goes ahead.

Ready to take part? Vestd PISCES gives companies and investors the tools, structures and workflows to organise PISCES events with confidence. Book a call with our team to learn more.

 

Our team, content and app can help you make informed decisions. However, any guidance and support should not be considered as 'legal or financial advice.'