New CGT Rules and Share Schemes
Alastair Darling's new CGT rules offer some crumbs to small business owners but have little effect on employee share schemes.
The new rules take the form of a relief of 4/9ths of gains on the sale of trading companies up to a limit of £1 million. A gross gain of £1 million will therefore become £555,555 on which tax of 18% will be £100,000 - an effective rate of 10%. The £1 million is a lifetime limit. The relief is restricted to those holding 5% or more of the shares and votes of a company and so most employee shareholders will be unaffected. It will also not apply to rights over shares, such as Enterprise Managment Incentives (EMIs) share options, Save-As-You-Earn (SAYE) schemes or Company Share Option Plans (CSOPs).
Predictably, no-one applauded Mr Darling's statement. Proshare, the leading lobbyists for employee share schemes, said they were "disappointed". The Federation of Small Business and the CBI joined the chorus of criticism and the Tories described the measure as a "text book example" of how not to introduce a tax change.
Nevertheless, employee share schemes continue to offer good tax value. Government backed schemes, such as the EMI, SAYE and CSOP share option schemes, will still treat gains as capital and not income, thus saving participants large amounts of tax on exercise and also saving their employers substantial sums in National Insurance. Participants in the Share Incentive Plan (SIP) will continue to pay no tax at all on shares held in the plan for five or more years.
If you would like to know more about the tax advantages of employee share schemes please call us for free advice on 020 8949 5522 or explore our website.