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Thumbs down for employee shareholder tax break

12th Dec 2012
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The Chancellor’s share-scheme reforms in Finance Bill 2013 draft clauses got mixed reviews from remuneration tax expert and part-time theatre critic Philip Fisher.

The PKF partner dismissed the plan for a new class of “employee shareholders” to receive a capital gains tax exemption on disposals of shares up to £50,000 as “the biggest joke of the year”.

On the other hand, a Budget 2012 proposal to extend entrepreneurs’ relief to enterprise management incentive (EMI) share options by removing the 5% minimium shareholding is “great news”, particularly since the recipients’ eligibility for the entrepreneurs’ 10% CGT rate on displosals will begin when the share options are first granted. The ER extension will apply to shares acquired on or after 6 April 2012 that are disposed of on or after 6 April 2013.

“Far be it for me to praise the government, but they got something right for once,” Fisher quipped.

Draft clauses published this week will enact both these measures in next year’s Finance Act, but the legislative machinery is moving more slowly on 16 Office of Tax Simplification proposals to simplify tax advantaged employee share schemes. The government published the responses to its consultation on the subject, and committed to following through on suggestions to simplify Share Incentive Plans (SIPs), Save As You Earn (SAYE) option schemes, Company Share Option Plans (CSOPs) and EMI. No firm details or timetable were given, but the consultation response document promised, “Most of these changeswill take effect during 2013.”

Fisher, who is a member of the OTS working party on employee share schemes, admitted to some disappointment that the government held back from merging EMI and CSOP, and is still hoping to see proposals to simplify unapproved employee share schemes in the new year.

In another, related announcement, the government said it had decided not to proceed with proposals to extend access to EMI for academic employees.

But the employee incentive issue that has dominated the headlines and will continue to do so is the Chancellor’s pet idea for employees to swap their employment rights for share options.

Individuals who agree to adopt “employee shareholder” status will be entitled to a minimum of £2,000 worth of shares. To encourage take-up of the scheme, from 6 April 2013 employee shareholders will be entitled to a CGT exemption of up to £50,000 on disposals of the shares they acquired as part of the scheme.

George Osborne launched the idea at the Tory party conference in October, and the proposal was rushed through a six-week consultation period to make it into the draft clauses for next year’s Finance Bill. According to Fisher, the government’s haste is apparent.

While the CGT exemption is ready for the statute book, Fisher pointed out that nothing has been published yet on the income tax and NIC reliefs mentioned in last week’s Autumn Statement documentation.

“It looks like the legislation was drawn up before the consultation was completed. It looks like a knee-jerk reaction as they skated over the tax or valuation aspects. All they thought about was getting rid of employee rights. It’s the biggest joke of the year. The idea of having to advise anyone about implementing it is horrible,” said Fisher, who advised those interested in a more detailed analysis to see his recent Taxation magazine article.

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