Changes in CGT will hit 80,000 employees

Up to 80,000 employees in share schemes are likely to be negatively affected by Government changes to capital gains tax every year, according to ifs ProShare.

The not-for-profit membership organisation for employee share ownership says employees will lose out because the current CGT regime sees basic rate taxpayers who have held shares in their employer for at least 2 years 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.

Research suggests that 16 per cent of the 500,000 SAYE share schemes that mature each year have gains in excess of the £9,200 CGT threshold, according to ifs ProShare.

Last month the Chancellor, Alistair Darling unveiled concessions to his radical CGT changes that are designed to target relief on the owners of small businesses when they sell their business. The relief will also be available to all employees and company directors who invest a material stake in qualifying companies.

The relief will deliver a 10 per cent tax rate for up to the first £1 million of lifetime capital gains. Individuals will be able to claim relief for gains made on multiple occasions up to a cumulative total of £1 million. Gains in excess of the £1 million lifetime limit will attract the standard 18 per cent rate of tax.

This announcement follows major reform of the capital gains tax regime in the 2007 Pre-Budget Report which will deliver a more sustainable, simplified and internationally competitive system.

Phil Hall, head of public affairs at ifs ProShare, says: “Last month, in a speech at the EEF Manufacturers’ biennial dinner, Darling said his last minute CGT concessions would affect 80,000 businessmen. It’s rather a sad irony that the number of people Darling says will benefit from his concessions are the same number as those who could lose out.

“We certainly don’t begrudge the last minute concessions granted to entrepreneurs. All that we ask is that the hard working employees who invest in their employer via an all-employee share plan do not lose out.”