Publication
Supreme Court of Canada rules managers cannot unionize in Quebec
On April 19, 2024, the Supreme Court of Canada handed down the long-awaited decision on the unionization of managers.
UK Budget 2016
Global | Publication | March 2016
The Chancellor’s aim of backing business and enterprise is to be delivered primarily through cutting entrepreneurial tax rates and introducing targeted tax incentives. However, this is accompanied by some tax-raising measures, including a new limit on Employee Shareholder Shares and, as announced in the Autumn Statement, higher rates of tax on dividends.
In addition to a further reduction in the rate of corporation tax, the other surprise announcement of the Budget which will please entrepreneurs is the reduction in the main rates of capital gains tax (CGT).
The main rate will fall to 20 per cent (from 28 per cent) for higher/additional rate taxpayers, and to 10 per cent for basic-rate taxpayers. Unlike the reductions in corporation tax – which will be phased in over this Parliament – this reduction is effective from 6 April 2016, so the benefits should be felt almost immediately.
Not everyone will be able to benefit from this, with the old rates continuing to apply to residential property (specifically, second homes and buy-to-let property) and carried interest. In addition to continuing to be taxed at 28 per cent, the Government is proceeding with the proposal to tax some ‘carry’ as income (at rates of up to 45 per cent); this applies to carried interest calculated by reference to assets held for less than three years.
Entrepreneurs’ relief will be extended in the following respects:
Investors’ relief will be introduced as described above. All of the other changes will be backdated to 18 March 2015. This is to unwind some of the consequences of the restrictions to this relief which were imposed in 2015 (to counter perceived abuses, including the use of so-called ‘manco’ structures).
Employee Shareholder Shares
One of the Chancellor’s previous innovations was to introduce a CGT exemption for employees (including directors) who gave up certain employment rights in return for ‘free’ shares worth at least £2,000.
Although there is a limit (£50,000) on the value of shares which can be provided in this form, this limit is based on the value of the shares when they are issued. This has the potential to be a very valuable relief for shares which appreciate significantly in value.
The Government is concerned about misuse of the regime, and has announced a £100,000 lifetime limit on the amount of gains which are eligible for this exemption. Details of how this limit will apply are awaited, but the announcement does confirm that the limit will not apply to shares which were awarded pursuant to an Employee Shareholder Agreement entered into before March 16, 2016. As such, and unusually, the lifetime limit is relevant to new arrangements only.
Dividend Taxation
Some entrepreneurs who carry on their business through a company will be worse off as a result of the changes to dividend taxation which were announced in the Autumn Statement; in effect a 7.5 per cent increase in the rate of tax on dividends in excess of the (new) £5,000 exemption. Those who might consider using loans to extract value instead will, if the company is ‘close’, face a similarly higher rate of tax in respect of those loans because the ‘loan to participator’ charge is also being increased from 25 per cent to 32.5 per cent from April 6, 2016.
It is interesting to consider the different rates of CGT which will apply to assets held by entrepreneurs. Leaving aside the £11,100 annual capital gains exemption, from April 6, 2016 the main rates will be as follows:
Asset | Tax treatment (for higher/additional rate tax payers) |
---|---|
Existing Employee Shareholder Shares | 0% |
New Employee Shareholder Shares | 0%, but subject to a £100,000 lifetime limit on gains. |
Interest in a trading business, held for 12 months+ | 10% (up to a £10 million lifetime limit on gains) |
5%+ shareholding in a trading company/group, held by a director/employee for 12 months+ | |
Newly issued shares in unlisted company, held for 3 years+ | |
Other assets, except carried interest and residential property | 20% |
Residential property | 28%, unless principal private residence (exempt) |
Carried interest | 28%, unless taxed as income (income tax rates) |
Increasing the differential between the rates of income tax and CGT will further enhance the incentive to receive capital gains rather than dividends, salary/bonuses or other forms of income. However, those tempted to participate in arrangements to convert income into capital should be aware of the many rules which restrict this, which (as announced in the Autumn Statement) will include changes to the ‘transactions in securities’ legislation and the new targeted anti-avoidance rule. There also remains continued uncertainty as to the scope of the revised DOTAS hallmarks and the extent to which they might apply to such arrangements, so as to require early disclosure to HM Revenue and Customs.
Publication
On April 19, 2024, the Supreme Court of Canada handed down the long-awaited decision on the unionization of managers.
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