Capital Gains Tax: lifetime limit on Employee Shareholder Status exemption
Published 16 March 2016
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Who is likely to be affected
Individuals who receive shares under an Employee Shareholder Agreement.
General description of the measure
The measure places a lifetime limit of £100,000 on the Capital Gains Tax (CGT) exempt gains that a person can make on the disposal of shares acquired under Employee Shareholder Agreements entered into after 16 March 2016.
Policy objective
The policy intention of the introduction of Employee Shareholder Status (ESS) in 2013 was to reduce regulatory burdens on business, promote business and employment growth and increase the choices available to businesses and employees.
This measure prevents abuse and improves the fairness of the tax system, by ensuring that the level of exempt capital gains from the disposal of Employee Shareholder shares is not excessive.
Background to the measure
This measure was announced at Budget 2016.
Detailed proposal
Operative date
The measure will have effect in relation to Employee Shareholder shares acquired in consideration of an Employee Shareholder Agreement entered into from midnight at the end of 16 March 2016, and to gains on such shares.
Current law
Current law on ESS is contained in section 205A of the Employment Rights Act 1996. The law on the Capital Gains Tax exemption is at sections 236B to 236G of the Taxation of Chargeable Gains Act 1992.
Proposed revisions
Legislation will be introduced in Finance Bill 2016.
For Employee Shareholder shares issued as consideration for entering into Employee Shareholder Agreements from midnight at the end of 16 March 2016 there will be a lifetime limit of £100,000 CGT exempt gains. Any past or future gains, realised or unrealised, on Employee Shareholder shares that were issued in respect of Employee Shareholder agreements made before midnight at the end of 16 March 2016 will not count towards the limit.
When Employee Shareholder shares issued as consideration for entering into Employee Shareholder Agreements from midnight at the end of 16 March 2016 are disposed of, gains made in excess of the lifetime limit will be chargeable to CGT.
For transfers of Employee Shareholder shares between spouses or civil partners, the transfer will be treated as being for consideration which gives rise to a gain equal to the transferor’s unused lifetime limit, subject to the over-riding condition that the consideration does not exceed the market value of the shares transferred. This amount will fix the acquisition cost in the hands of the spouse.
Summary of impacts
Exchequer impact (£m)
| 2016 to 2017 | 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 |
|---|---|---|---|---|
| - | - | - | +10 | +35 |
These figures are set out in Table 2.1 of Budget 2016 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costing document published alongside Budget 2016.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
The measure will affect individuals in relation to Employee Shareholder shares acquired in consideration of an Employee Shareholder Agreement entered into from midnight at the end of 16 March 2016, and to gains on such shares. From the operative date, those individuals with ESS who make more than £100,000 of gains on their Employee Shareholder shares in their lifetime will be charged to CGT on gains made above that threshold. Previously the CGT exemption had no limit. The measure affects only individuals who are Employee Shareholders, that is, who have given up certain statutory employment rights in exchange for free shares. There is currently no data available on the number of individuals who have been granted Employee Shareholder shares. The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
The measure affects those individuals who have ESS. The equality impacts will therefore reflect those protected equality groups represented in this population.
Impact on business including civil society organisations
This measure is expected to have a negligible administrative burden impact on businesses and civil society organisations, as businesses with Employee Shareholders familiarise themselves with the new rules for Employee Shareholders.
Operational impact (£m) (HM Revenue and Customs (HMRC) or other)
The measure is expected to cost less than £0.5 million for HMRC to deliver.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be monitored through liaising with affected taxpayer groups.
Further advice
If you have any questions about this change, please contact Tom Rollinson on Telephone: 03000 585 167 or email: tom.rollinson@hmrc.gsi.gov.uk.