Company share schemes
Increased tax bills on the horizon?
Many employees who have joined their company's share scheme could be subject to increased tax bills following the proposed changes to capital gains tax (CGT) that were announced during the Pre-Budget Report.
These schemes have cost the Government in the region of £3.6bn in tax relief since 1985 according to ifs ProShare, and there are over 1,300 approved employee Sharesave schemes in the UK with around 2.6m investors.
In his pre-Budget Report, Alistair Darling, the Chancellor, announced that he proposed to introduce an 18 per cent flat rate of CGT and intended to abolish the current system of taper relief. The new rate of 18 per cent would apply equally to both basic rate and higher rate taxpayers.
The effect of this for a higher rate taxpayer participating in a SAYE scheme, could mean that they are 8 per cent worse off than before and that a basic rate taxpayer is 13 per cent worse off.
These schemes are known as Sharesave, Save As You Earn (SAYE) plans or Savings Related Share Option Schemes and were introduced in 1980.
They are tax-advantageous savings schemes combined with a share option arrangement designed to encourage employees to take a direct stake in their company and so participate in its future. As a consequence the proposed changes may discourage employees from taking out such schemes due to the potentially higher tax charges.
A variation on the Sharesave idea was introduced in 2000 in the shape of;
Share Incentive Plans (Sips).
A Sip is an investment vehicle offering tax and National Insurance breaks to employees provided that they hold shares in their employer for five years.
Employees may invest up to £1,500 or 10 per cent of their salary (whichever is lower) in "partnership'' shares, so called because the company can choose to match your purchases at a maximum ratio of two to one.
Firms may also give free shares up to a limit of £3,000.
Dividends from shares can be reinvested up to a maximum of £1,500 a year.
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This article is for your general information and use only and are not intended to address your particular requirements. The articles are based on our understanding as at the 7th November 2008. They should not be relied up on in their entirety. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. Articles that make reference to the Pre-Budget Report are subject to the Finance Bill becoming law. |