CGT tripled for some SAYE savers

Changes to capital gains tax, confirmed by the Treasury last month, could negatively affect over 270,000 employees in Save As You Earn (SAYE) schemes says ifs ProShare.

The not-for-profit organisation that supports employee share ownership in the UK says 16 per cent of the 1.7 million employees participating in SAYE schemes could lose out as a result of the changes.

The current CGT regime means that basic rate taxpayers who have held shares in their employer for at least 2 years are only subject to a 5 per cent CGT charge. The Chancellor’s changes mean that these employee shareholders will have to pay an additional 13 per cent tax on any gain above 9,200 from April 2008.

This means employees who have contributed to the success of their employers are now going to be worse off than under existing legislation. Non-employee shareholders who have not done so on the other hand are to have their CGT liabilities substantially reduced from 40 per cent to 18 per cent. The changes are also likely to have some impact on medium and long term saving through employee share ownership, damaging moves towards wider share ownership as a means of saving for the future.

Ifs says the uncertainty and repeated delays in confirming this decision mean many employee shareholders will have to make relatively quick decisions about whether or not to sell or hold some of their shares. Employers will also face a real challenge in communicating these implications to their employees within a very short period of time.

In light of the tight time scales it is calling for a grandfathering arrangement to be introduced so that existing participants in SAYE schemes continue to benefit from taper relief at the current rates.

Fiona Downes, head of employee share ownership at ifs ProShare, says: “Having informed the Chancellor of the fact more than 270,000 employees could be worse off following his proposals, we are naturally disappointed that this evidence appears to have been ignored.