Extra CGT relief provides massive boost for share schemes

The Chancellor's decision yesterday to double the lifetime limit for Entrepreneur's relief from £1 million to £2 million means that many more participants in employee share schemes will be able to shelter their gains at the concessionary effective rate of just 10 per cent. Meanwhile, despite much speculation that the headline rate of CGT would be increased, it remains the same at 18 per cent.

Participants in schemes such as the Enterprise Management Incentive and Company Share Option Plan often acquire their shares at an early stage in the company's development, when they are worth very little. When the company is sold, however, the shares may be massively more valuable. An RM2 client recently sold at a share price more than 20 times the exercise price of the options. Ratios of 30 times, 50 times or more are not uncommon. Yesterday's announcement means that many more share scheme participants will suffer tax of only 10 per cent. on their hard-earned gains.

This benefit will extend also to unapproved schemes such as the Deferred Share Purchase Plan, which are structured so that gains fall within the capital gains tax regime and not income tax.

We think that it will be difficult for the Tories, even if they win office, to reverse the new Entrepreneurs Relief limit since it would be seen as anti-enterprise.

For free advice on the tax benefits of employee share schemes, and how the new £2 million band could affect you, please call us on 0800 043 8150.