Autumn Budget 2024: EQ Considers The Impact For Employee Share Plans

In This Article:

Capital Gains Tax
SIP and SAYE Call for Evidence
National Insurance Contributions
SIP - Clarification Of Taxable Status Of Statutory Neonatal Care Pay
Individual Savings Accounts, Lifetime ISA, Junior ISA and Child Trust Fund Allowance
Private Intermittent Securities and Capital Exchange System Stamp Taxes on Shares Exemption 
EOTs and EBTs
Carried Interest
Internationally Mobile Employees

Capital Gains Tax

Capital Gains Tax — rates of tax - GOV.UK

The main rates of Capital Gains Tax (CGT) that apply to assets (other than residential property and carried interest) increase from: 

• 10% to 18% for basic rate tax payers and; 
• from 20% to 24% for higher rate tax payers for disposals made on or after 30 October 2024.

Points to consider:

• The change is effective immediately.
•  Paying CGT – crossover period:

o   For the 2024 to 2025 tax year affected taxpayers will be required to identify gains made before and after 30 October 2024 to determine the correct rate of CGT when completing their tax return.

o   This measure is expected to increase individuals’ levels of administration when dealing with HMRC for the latter half of the 2024 to 2025 tax year, as changing the rate schedule within the tax year cannot be fully integrated into the self-assessment calculation, so customers will have to take extra steps for any gains made on or after 30 October 2024. HMRC will provide guidance and the tools to support customers to calculate the CGT that is due.

o   From the 2025 to 2026 tax year there will be no additional burdens as the rate changes will be fully reflected in HMRC’s guidance and online tools.

• There are special provisions for contracts entered into before 30 October 2024 but completed after that date, and special provisions for share reorganisations and exchanges where an election is made.
• SIP – Shares in the tax advantaged SIP are sheltered from CGT whilst held in the plan.
•  Going forward, gains on the disposals of tax advantaged CSOP shares will be at these higher rates.
•  Going forward gains on the disposals of tax advantaged SAYE shares will be at these higher rates. However, the benefits from transferring shares to an ISA or pension continue. This means that it is more important than ever to provide financial education to employees at SAYE maturity so they know how to mitigate CGT.
• Gains on the disposals of EMI shares are subject to Business Asset Disposal Relief (BADR). Although the Government has announced it will be maintaining BADR it will gradually increase the rate of relief on CGT. Currently, BADR is available on disposals of businesses or business assets and reduces the rate of CGT on qualifying gains to 10%. However, the rate will be increased from 10% to 14% from 6 April 2025 and to 18% from 6 April 2026.

SIP and SAYE Call for Evidence

There were no updates regarding the Treasury’s call for evidence on SIP/SAYE plans. 

National Insurance Contributions

The government is not increasing the basic, higher, or additional rates of income tax, National Insurance contributions (NICs) or VAT.

The government will not extend the freeze to income tax and National Insurance contributions thresholds. From April 2028, these personal tax thresholds will be uprated in line with inflation.

The government is increasing the rate of employer NICs by 1.2 percentage points to 15%. The per-employee threshold at which employers start to pay National Insurance will be reduced from £9,100 per year to £5,000 per year. These changes will apply from 6 April 2025.

Points to consider:

·         Changes apply from 6 April 2025.

·         SIPs – Potential increase in employer NIC savings if employees contribute to Partnership shares. Our SIP employer NIC savings calculator will be updated with the new rate.

·         If a company wishes to introduce a small match with the cost equivalent to employer NIC savings, then 100/15 = 6.7, so a 1:6 or 1:7 match would broadly be cost neutral. 

·         Some companies with executive share plans take advantage of the power to transfer employer’s NIC to the employee.

SIP - Clarification Of Taxable Status Of Statutory Neonatal Care Pay

The government will legislate in Finance Bill 2024-25 to clarify the income tax treatment of Statutory Neonatal Care Pay. This will ensure the payment is liable to income tax and ensures consistency with the tax treatment of other statutory maternity and paternity pay schemes.

Employment Related Securities Changes – Consequential to the Neonatal Care (Leave and Pay) Act – From 6 April 2025, the notice an employer must provide to an employee under a Share Incentive Plan regarding the possible effect of deductions from salary on entitlement to social security benefits and statutory payments must refer to statutory neonatal care pay. This will be legislated for in Finance Bill 2024-25.

Point to consider:

·        SIP documentation, e.g., within terms and conditions, will already have a section explaining that buying Partnership shares may affect employees' entitlement to or the level of, some contributory social security benefits, statutory maternity pay, and statutory sick pay. This needs to be updated to include 'and statutory neonatal care pay'.

Individual Savings Accounts, Lifetime ISA, Junior ISA and Child Trust Fund Allowance

Annual subscription limits will remain at £20,000 for ISAs, £4,000 for Lifetime ISAs and £9,000 for Junior ISAs and Child Trust Funds until 5 April 2030.

British ISA – The government will not proceed with the British ISA due to mixed responses to the consultation launched in March 2024.

Point to consider:

·       Importantly there was no change to the 90-day transfer provision - You can still transfer shares to an ISA within 90 days of when they were taken out of a SIP or SAYE and not have to pay CGT on any gains.

Private Intermittent Securities and Capital Exchange System Stamp Taxes on Shares Exemption 

The government is committed to delivering the Private Intermittent Securities and Capital Exchange System (PISCES), a new innovative market for trading private company shares. In line with that commitment, the government is announcing that PISCES transactions will be exempt from Stamp Duty and Stamp Duty Reserve Tax. The exemption will be introduced to a similar timeline to the legislation establishing the PISCES regulatory framework.

EOTs and EBTs

Taxation of Employee Ownership Trusts and Employee Benefit Trusts - summary of responses - GOV.UK

On 18 July 2023 the previous government published a consultation on the Taxation of Employee Ownership Trusts (EOTs) and Employee Benefit Trusts (EBTs).

The government intends to proceed with the changes outlined in the response paper and legislation will be introduced in the Finance Bill 2024. For EBT’s the changes are:

·       confirm in legislation that the restrictions on connected persons benefiting from an EBT must apply for the lifetime of the trust

·       to only allow the IHT exemption where the shares have been held for 2 years prior to settlement into an EBT

·       require that no more than 25% of employees who are able to receive income payments from an EBT should be connected to the participators of the company

The changes are intended to ensure that the reliefs remain focused on the policy objectives of rewarding employees and encouraging employee engagement. The government will monitor the effectiveness of these reforms to ensure that the EOT and EBT reliefs represent good value for money and are not abused to obtain tax advantages contrary to the policy objectives.

Carried Interest

Carried_Interest_Taxation_Reform_-_outcome.pdf

Carried interest is a performance-related reward received by a small population of fund management executives. Unlike other forms of compensation, carried interest can be subject to CGT, where certain conditions are met. The government believes there is a compelling case for reform in this area. From April 2026, carried interest will be taxed fully within the Income Tax framework, with bespoke rules to reflect its unique characteristics – providing for fairer and more sustainable outcomes, while safeguarding the strength of the UK as a fund management hub. Ahead of this, the CGT rates currently applied to carried interest will be increased to 32% from April 2025.

On 29 July 2024, the government announced a commitment to reform the tax treatment of carried interest and published a call for evidence.

The call for evidence closed on 30 August 2024.

Recognising the complexity of the legislation in this area, the reforms set out in Chapter 3 will take effect from April 2026, allowing for a period of technical consultation. The Chancellor of the Exchequer announced at Autumn Budget 2024 that, in the interim, the two CGT rates for carried interest would both increase to 32%. This change, which will be legislated in the Autumn Finance Bill 2024, will apply to carried interest arising on or after 6 April 2025 and remain in place until the implementation of the wider reform package in April 2026.

Internationally Mobile Employees

The government is setting up a new residence-based tax regime system to make sure that everyone who makes their home in the UK pays their taxes here.

It's as yet unclear how that impacts internationally mobile employees (IMEs) where an apportionment of equity-based reward depends on where the duties are performed (UK or elsewhere).