The government is to abolish the capital gains tax (CGT) exemption and the income tax and National Insurance contributions (NICs) relief linked to employee shareholder status (ESS) in response to evidence it is primarily being used for tax-planning purposes by high-earning individuals, the Chancellor announced in his Autumn Statement
Philip Hammond told MPs that the tax advantages linked to shares awarded under ESS will be abolished for arrangements entered into on, or after, 1 December 2016. The status itself will be closed to new arrangements at the next legislative opportunity.
Hammond said: ‘This is in response to evidence suggesting that the status is primarily being used for tax planning instead of supporting a more flexible workforce’.
Available from 1 September 2013, employee shareholder is a new employment status. Employee shareholders have different employment rights to employees, and are awarded at least £2,000 of shares in their employer or parent company.
Income tax and NICs will usually not be chargeable on the first £2,000 of share value received by an employee shareholder, and there will usually be CGT exemption for £50,000 of shares received by an employee shareholder. This will now stop for arrangements after 1 December.
HMRC has published guidance on the change, which states that there is a short window for outstanding agreements to be finalised, due to the requirement that seven days must pass between an employee receiving relevant independent advice on the offer and the arrangement being finalised. The effective date is to be the 2 December 2016 where relevant independent advice is received on 23 November 2016 prior to 1.30pm.
According to the Treasury’s Autumn Statement policy costings document the Exchequer impact of the measure will be positive with £50m expected to be raised by 2021/22.
Roy Maugham, tax partner at UHY Hacker Young, said: ‘Unfortunately, HMRC viewed these schemes as widely abused by senior executives, rather than being used for and benefitting “average” employees as originally intended.
‘There has also been much adverse publicity surrounding abuse of the schemes by private equity firms.
‘However, these schemes can work as a highly efficient and cost-effective way to remunerate employees, and offering shareholder status is widely valued as a way to instil loyalty and boost productivity amongst staff.’
HMRC’s updated guidance on the income tax treatment of employee shareholder shares is here.
