Further supplementary memorandum from
HM Treasury
Q403: SHARE SCHEMES
AND CGT
— There are four tax advantaged
employee share schemes: Share Incentive Plan (SIP), Save As You
Earn (SAYE), Company Share Option Plan (CSOP) and Enterprise Management
Incentives (EMI).
— SIP gains are sheltered from
CGT while shares are in the scheme. Participants can choose to
remain within the scheme until they leave their employer. Shares
are rebased when the employee leaves the scheme, at which point
they can sell their shares with no CGT liability.
— The Annual Exempt Amount for
CGT is £9,200 in 2007-08, rising to £9,600 in 2008-09.
— The vast majority of SAYE participants
have gains within the AEA. (Average gain is estimated to be £2,300).
— Average gain under CSOP is also
well within the AEA (estimated to be £3,300).
— Average gain on EMI shares is
£48,000. However, EMI remains a generous tax scheme. It provides
tax advantaged share options designed to help small, higher risk
companies recruit and retain skilled employees. Under the scheme
employees can hold tax advantaged options over shares with a market
value of up to £120,000. The grant and exercise of the option
is tax-free—there is no income tax and no NICs for the employee
or employer. If the shares are sold at a gain, then the shares
will be subject to capital gains tax. EMI therefore remains a
generous tax scheme.
— The table below shows estimated
average grant values per employee using three tax-advantaged share
schemes, together with the average tax-relieved gain per employee.
The figures are based on information returns for 2005-06 and correspond
to the latest published National Statistics.
| Share option scheme
| Number of employees granted options in 2005-06 ('000)
| Average grant per employee (£)
| Number of employees exercising options in 2005-06 ('000)
| Estimated average gain per employee on exercise (£)
|
| EMI | 27 | 10,000
| 6 | 48,000 |
| CSOP | 120 | 6,300
| 130 | 3,300 |
| SAYE | 560 | 3,800
| 390 | 2,300 |
— The average values set out above indicate that
the great majority of gains at the time of acquiring shares fall
well within the AEA. Although EMI gains are higher on acquisition,
they are far fewer in number, and are below £10,000 in about
60% of cases.
— Of those individuals in employee share schemes
with gains above the AEA, many may be able to dispose of their
shares in successive years. This allows them to take advantage
of the AEA in each year as they make a disposal.
— For those who sell their shares immediately
and have a CGT liability, they will be better off under the new
CGT regime, paying tax at 18% instead of 20% or 40%.
— Statistics on the use of employee share schemes
are only captured at the company level, rather than for each individual
employee. This information also only covers shares provided through
such schemes and does not include either the gain when the employee
sells those shares nor whether employees hold other shares (such
as in their employers).
March 2008
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