The Budget contained no relevant announcements for tax-favoured plans – the first time in years that this has not been the case, which reflects them now being relatively mature products after a final period of intense Office of Tax Simplification-inspired change in 2013/4.
However, there are two relevant changes for employee shareholdings outside the formal plans:
- Employee shareholder shares’ relief has been capped at £100,000 for shares issued after 16 March 2016. Employee shareholder shares have become a regular feature of private equity deals, particularly since the 2015 election. With shares having heavily geared growth profiles, the potential for embarrassingly large gains and 0% tax meant that this scheme might have become the victim of its own success had this action not been taken. It will be interesting to see whether the cap stops this scheme being used so often going forward.
- The second change is that after 6 April 2016, the rate of capital gains for higher rate taxpayers on shares falls to 20% from 28% (and for basic rate taxpayers from 18% to 10%). An annual exemption still applies which still means that many capital gains are not taxable at all. Employees may well be looking to sell shares in the next year rather than this year where possible.
Finally, while there is a new form of entrepreneurs’ relief for long-term holdings, this is expressly not available to employees or directors as it is only usable by external investors.