Hurdle Rates explained

What is a hurdle rate, and how is it set?

A hurdle rate is the level, in £ per share, above which the beneficial owner of that share will have full economic rights to the company in question.

For example, if you have shares with a hurdle of £1 per share, and the company is eventually sold for £3 per share, then you will receive £2 per share.

The hurdle rate is set by the company at a level that reflects the value of the company at the time at which the shares were issued, including a small premium to reflect the hope value of the shares.

This means that when you receive the shares you should not incur a tax liability, and only will need to pay capital gains tax on the eventual sale of the shares - based on the difference between the eventual share price and the the hurdle rate at which they were issued.

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