Government clamps down on tax benefits for employee shareholders

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Posted on 17 Mar 2016

George Osborne has announced that the exemption from CGT for gains made on employee shareholder shares is to be subject to a lifetime limit of £100,000. The new limit, announced in the budget, applies to employee shareholder shares issued after midnight on 16 March 2016. Gains above the lifetime limit will be chargeable to CGT in the normal way.

Employee shareholder status was introduced in September 2013 and allows employees to give up some of their employment rights (including the right to claim unfair dismissal) in exchange for shares and associated tax advantages. Although available to companies of all sizes, it was intended to benefit fast-growing small and medium-sized companies that wanted a flexible and incentivised workforce (with fewer employment rights). The intention was to reward more junior staff with shares, but in practice it has been used by private equity investors seeking to reward key staff in a tax-efficient manner. The Government’s decision to limit the CGT exemption will make employee shareholder arrangements a much less attractive prospect.

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