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.
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.