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Capital gains shock for workers in share schemes

People who buy shares in the company for which they work could be hit by punitive tax hikes under changes to the capital gains tax (CGT) system announced this week.

Analysts warn that thousands of investors in share ownership schemes will be subject to an 18 per cent tax on profits, an increase of up to 13 per cent on the present rate. The Chancellor, Alistair Darling, removed so-called taper relief and introduced a flat 18 per cent CGT rate in his pre-Budget report in October last year.

Entrepreneurs selling business assets will still be allowed to pay a reduced 10 per cent rate of CGT on profits below £1m, a measure that will also apply to individuals selling company shares – as long as they have a 5 per cent minimum stake.

But this will still leave the hundreds of thousands of small investors engaged in "save as you earn" and share option schemes falling into the 18 per cent band for CGT liability from 6 April this year.

"The replacement of the taper relief currently available to investors in companies [not listed on a stock exchange] would mean that instead of paying an anticipated 10 per cent tax rate on disposal after three years, this would soar to 18 per cent," said Jason Hollands of F&C Investments. He added that the measure would particularly hit owner-entrepreneurs, who often rely on share ownership schemes as a way of raising cash for their businesses.