HM Treasury’s spate of discussions about proposals to soften the impact of the government’s Capital Gains Tax (CGT) changes will continue in the first week of November 2007 when Ifs Proshare will meet with officials to propose an exemption for employees in sharesave or save-as-you-earn (SAYE) schemes.
The not-for-profit organisation plans to discuss possible solutions with HM Treasury officials to its concerns that a significant minority of employees in sharesave schemes could be subject to an 18% CGT charge from April 2008, regardless of how long they have held shares in their employer, following changes made by Alistair Darling, Chancellor of the Exchequer, in the pre-Budget report.
The increase in CGT to a flat rate of 18% means that whereas staff who have currently held shares in a company sharesave scheme for more than two years could be paying CGT of just 10%, the new rate will apply to all employees. Therefore, higher-rate tax payers in a scheme could potentially be 8% worse off than before, while basic-rate tax payers could be 13% worse off.
IfsProshare will recommend a CGT exemption for all employees who participate in sharesave schemes, stating that this would demonstrate government commitment to all employee share plans.
A spokesman for Ifs Proshare, said: “As the industry and government are agreed that we are not talking about the majority of participants, exempting sharesave participants from CGT should not adversely affect tax receipts.”
If the government accepts that a significant minority of sharesave members will be negatively affected by the proposed CGT changes, then the maintenance of taper relief for such schemes must be a priority, “Otherwise, government is sending out a message that medium and long-term investments are not to be changed,” he added.
Other possible solutions likely to be discussed include an exemption for shares bought through a sharesave scheme and then held for a longer period, for example five years, or an increase in the individual savings accounts (ISA) allowance solely for these type of shares. Currently, employees have 90 days from the date of exercising their sharesave options in which to put their shares in an ISA up to the existing limit of £7,000 which ensures they avoid CGT.
Meanwhile, amid reports that Darling has expressed a willingness to consider measures to mitigate the impact of changing the 10% rate of CGT to a single 18% rate, EEF, the industry body for engineering and manufacturing employers, yesterday argued that the changes to CGT would be damaging for enterprise by rewarding investment in non-business assets and would send a negative signal when the investment climate is set to become more difficult – particularly for smaller firms.
It suggested separate tax rates for business and non-business assets to limit the impact on smaller firms. EEF said there is a strong case for targeting small firms because they are the main generation of employment and face the biggest barriers to financing investment.