News

New CGT regime - implications for share schemes

Fri 19th October 2007

In the pre-Budget statement on October 9th 2007, the Chancellor announced that the previous capital gains tax regime would be abolished and replaced by a flat rate charge of 18 per cent.,to take effect from April 6th 2008. Here we consider some of the implications.

Are statutory share schemes such as EMI still worthwhile? Definitely. A capital gains tax rate is 18 per cent. is still much better than the total tax and NI of up to 53.8 per cent.on cash payments or unapproved schemes.

Can we change the vesting conditions on our EMI options so that employees can exercise before April 2008? Not normally. However after April 2008 the participants will still retain 82 per cent. of their gains.

Do these changes affect our company’s Share Incentive Plan? No tax is payable on shares held in a SIP trust, irrespective of how long they remain there. If shares are withdrawn within 5 years of appropriation, some income tax and NICs may be payable. Capital gains tax is payable only on taxable gains after shares have been withdrawn from trust, and this rate is now a flat 18 per cent.
What about share purchases made by employees? Gains subject to capital gains tax will be taxed at a flat rate of 18 per cent.

Does the new regime offer any opportunities? If you were previously unable to offer EMI options, perhaps because of size or business activities, you could consider offering options under another statutory scheme, the CSOP. The share value limit is £30,000 not £100,000 and the options cannot be exercised in less than three years. However the maximum tax rate, which used to be 40 per cent., will be 18 per cent.

Are there any ways employees can reduce a capital gains tax charge on share scheme gains after 5th April 2008? Methods include spreading gains over two or more tax years, in order to use multiple personal exemptions3; transferring shares acquired from a SIP or SAYE scheme into an ISA; making use of the unused personal allowances of a spouse or civil partner, or making pension contributions with some of the sale proceeds which will create a countervailing reduction of income tax.

Are your employees concerned about the new tax treatment for their share incentives? If so you can ask us to provide you with a document explaining the general implications for participants in your own company’s scheme(s). A small charge may be made. Please contact us on Freephone 0800 043 8150 to discuss further.