Employees who have acquired shares at reduced values as part of incentive schemes face losing capita...
Employees who have acquired shares at reduced values as part of incentive schemes face losing capital gains tax privileges unless they act by 2 September.
The changes affect employees who have been issued shares or securities subject to restrictions that reduce their market value, on the basis this value will increase between acquisition and eventual sale.
Under 2003 Finance Act legislation, which received Royal assent on 10 July, shareholders and their employers can jointly agree to ignore the market value restrictions for income tax purposes, meaning the employee pays tax on the full market value.
Having paid this, the only further liability will be reduced capital gains tax on any future growth of the shares. With business asset taper relief, this tax is normally charged at an effective rate of 10% on sale, as long as they are held for two years. After this period, only 25% of the gain is liable to capital gains tax, meaning an overall rate of 10%, a quarter of the normal 40%.
Previously, when such conditional shares were sold, the employee paid income tax on the value of the shares at the point of sale and any capital gain was be partially taxed at 10% and partially at the full 40% depending on individual circumstances. Employees will face such charges if they fail to take advantage of amended legislation in time.
Originally scheduled to come into force on 1 August, this legislation has been moved back to 18 August to align it with the adoption of related national insurance regulation.
As any such de-restriction contract must be set up and signed within 14 days of acquiring the shares, opt out agreements for shares issued on or after 16 April 2003 to the current appointed day of 18 August, must therefore be completed by 2 September.
In future, employees will have up to 14 days from the point they acquire the shares to arrange opting out of the restrictions.
The Inland Revenue has agreed that a third party can sign the de-restriction agreement on behalf of employees if this person has power of attorney, recognising the fact many people may be on holiday in early August.
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