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ifs ProShare has expressed concern at the potentially unintended consequences of the Capital Gains Tax (CGT) simplification announced by the Chancellor in his Pre Budget Report.
The majority of employees participating in their employers' share plan are doing so via a SIP (Share Incentive Plan) which shield employees from any capital gains. The new CGT arrangements will only have an impact on these employees in very limited circumstances.
However, approximately 1.7 million UK employees are making monthly savings through a Sharesave Save As You Earn scheme and many of these could now be subject to an 18% CGT charge from April 2008, regardless of how long they have held shares in their employer.
The new rate of 18% applies equally to basic rate and higher rate taxpayers and to business and non-business assets. This means that higher rate taxpayers participating in a SAYE scheme could be 8% worse off than before and basic rate taxpayers could be 13% worse off. In contrast, non-employee shareholders could be up to 22% better off.
Fiona Downes, Head of Employee Share Ownership at ifs ProShare, said, "Whilst the Treasury may have sound reasons for simplifying CGT, it would appear the consequences for employees saving through employee share plans had not been fully assessed. These apparently unintended consequences contradict Governments' oft stated commitment to encouraging long term saving and to their support for wider share ownership.
"As a result, we will be consulting with our members over the next few days and will then be seeking a meeting with Treasury officials to express the views of the share plans industry, provide evidence of the negative impact these changes may have on many hardworking employees and to discuss possible solutions."
10 October 2007 © Moneyextra.com
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