More than a quarter of a million employees in Save As You Earn (SAYE) schemes are likely to be worse off, thanks to the Chancellors decision to change the rules surrounding Capital Gains Tax.
According to ifs ProShare, the not-for-profit organization that supports employee share ownership, around 1.7million employees in the UK use SAYE schemes and around 16 per cent of these (more than 272,000 people) will be worse off following Alistair Darling’s decision to bring in a single 18 per cent rate for CGT as of April 6 2008.
Under current CGT rules, basic rate taxpayers who have held their shares for at least 2 years are subject to 5 per cent CGT; the change means such shareholders will now be 13 per cent worse off. Higher rate taxpayers who held their shares for at least 2 years would have been subject to 10 per cent CGT so under the new rules, they will be 8 per cent worse off.
ifs Proshare met with Treasury officials this week to explain the negative impact that capital gains tax changes may have on many hardworking employees, many of whom will soon be subject to an 18% CGT charge regardless of how long they have held shares in their employer.
“When the Chancellor first announced these changes, we made it clear that a significant minority of SAYE participants would be affected,“ said Fiona Downes, Head of Employee Share Ownership at ifs ProShare.
“Our research supports this initial assumption, as 80,000 employees a year could now face an increased tax bill. Action is clearly needed to address this issue.”
ifs ProShare has suggested a number of solutions for consideration by the Treasury, these include a complete exemption from CGT for shares acquired through SAYE schemes and the maintenance of taper relief for shares acquired through SAYE schemes.
“In the interests of meeting the Government’s objective of simplifying the tax system, we believe the simplest and most effective solution would be a complete exemption for SAYE Scheme, “continued Ms Downes. “This would send out a very clear message that the Government is serious about encouraging medium and long term saving through employee share ownership.”
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