In last month’s Budget Darling confirmed that the rate of CGT is to switch to a flat rate of 18 per cent and the annual limit that employees can earn from a share plan before this tax is applicable is increasing from £9,200 to £9,600.
Prior to the change, basic rate tax payers that held their shares for two years or more, could benefit from taper relief, meaning they would only pay 5 per cent CGT on any gain over the annual limit. High rate tax payers in the same situation were subjected to a 10 per cent charge to gains over the annual threshold.
The incentive for employees to hold onto shares at a company, and remain loyal to that firm over a long period of time because of their investment has potentially been reduced.
Stella Brooks, director at Inbucon, says: “The new legislation doesn’t encourage an employer to hold on to his or her shares. It makes no sense to hold on to shares because they will be taxed at the same rate. There is no incentive to hold on to shares.”
However the new flat rate has simplified the complex tax system, making the lives of employers easier in terms of communicating the share scheme to employees.
Prior to this change the top level CGT that an employee would pay was 40 per cent of gains exceeding the annual allowance. High rate tax payers that sold their shares within 12 months of acquiring them, for instance, would have been forced to pay this level of tax.