Details of when income tax and CGT reliefs will no longer be available.
The Chancellor announced that income tax and CGT reliefs are no longer available for companies making new employee shareholder agreements and individuals who have been offered – but have not accepted – employee shareholder status.
The announcement states that:
The measure removes the income tax reliefs on the receipt or buy-back of shares issued to an employee under an employee shareholder agreement made on or after 1 December 2016. It also removes the Capital Gains Tax (CGT) exemption relating to shares received as consideration for entering into an employee shareholder agreement on or after the same date. Shares received under agreements made before that date are not affected. Corporation tax reliefs for the employer company are not affected.
It is stated that the changes will only apply to shares acquired in connection with employee shareholder agreements made on or after 1 December 2016. The announcement highlights the likely areas of legislative change, making it clear that only the tax legislation is affected. The announcement says:
Legislation will be introduced in Finance Bill 2017 to amend Chapter 12 of Part 3 of the Income Tax (Earnings and Pensions) Act 2003 so that the full value of shares received as consideration for entering into an employee shareholder agreement constitutes earnings of the recipient. Section 226A(3) and sections 226B to 226D will be omitted. Consequential changes will be made to the Corporation Tax Act 2009.
The Taxation of Chargeable Gains Act 1992 will be amended so that CGT will be chargeable on all gains accruing on disposals of shares received as consideration for entering into an employee shareholder agreement. Losses on such disposals will be allowable losses. Sections 236B to 236F will be omitted and consequential changes will be made to sections 58 (spouses and civil partners) and 149AA (restricted and convertible employment-related securities and employee shareholder shares).
Section 385A of the Income Tax (Trading and Other Income) Act 2005 will be omitted so that if an issuing company buys-back from an employee shares which were issued to that employee as consideration for entering into an employee shareholder agreement, the payment given by the company may be taxed as a distribution in respect of those shares.
For more details see the draft clause for the Finance Act 2017.