Employees' perk exposes tax red herring

COMMENT

Have you heard of that outrageous pounds 90m a year tax dodge that allows the profits made on exercising share options to be counted as capital gains instead of income? Punters can also fiddle a large chunk of extra tax relief on their profits at the expense of honest taxpayers by registering some of the shares in a spouse's name after exercising the options. The pounds 6,000 capital gains allowance suddenly becomes pounds 12,000. Wait until Gordon Brown gets wind of that.

No, this is not the notorious fat cats' executive option scheme, now part of our national demonology as a result of the profits made by David Jefferies, chairman of National Grid, who transferred some of his shares to his wife to save additional tax.

It is in fact the Inland Revenue's Save As You Earn share option scheme, used by 590,000 employees a year, which happens to be pretty well identical in tax relief terms to the executive share option schemes beloved by our overpaid utility directors.

The scheme gives the same tax saving as executive options. By allowing profits to be counted as capital gain rather than income, they qualify for the full CGT allowance of pounds 6,000 a year. If you make pounds 730,000, like Mr Jefferies, the odd few thousand of tax saved is neither here nor there. Under the SAYE scheme, however, they make all the difference. Somebody who makes a pounds 25,000 profit, as some secretaries, clerks and chauffeurs at Standard Chartered Bank did recently, can avoid paying CGT on the whole lot, by giving half the shares to a spouse, and spreading the sale over two tax years.

Even with the executive schemes, it is not just the fat cats who benefit. The Inland Revenue says there is no reason why firms should not spread the benefits of the executive share option scheme to all employees, and some actually do.

According to a recent survey by KPMG, just over half of companies extend the executive scheme down to middle management, and 14 per cent allow non-management staff in. As many as 80,000 people a year take new options under executive schemes, at a cost to the Treasury of pounds 50m.

The oddity of this whole row is that the few beneficiaries of these tax perks who would not notice their abolition are those at the top, whose enormous windfall gains would dwarf the lost tax benefits.

Mr Brown has in the past acknowledged the fairness of the SAYE option scheme. He should now recognise that the tax issue is a red herring and that what matters is stopping the award of over-generous share options in the first place.

Northern should do the honourable thing

Much energy, anger and expenditure is being incurred on the bid that Northern Electric will not allow Trafalgar House to make. There are principles aplenty involved, but given the length of time it is taking to settle the matter, little else. Northern shareholders meet next Friday to vote on the matter. Dissident shareholders, led by the American arbitrageur Guy Wyser-Pratte, are trying to force Northern directors to agree that Trafalgar House should be allowed to make the new bid, worth pounds 9.50 a share. It is the shareholders' right, not the board's, to decide whether Trafalgar's bid is worth accepting, is the rallying call. The board is resisting on the grounds that present regulatory uncertainty makes it impossible to offer credible counter-proposals as a defence.

Many might reasonably wonder what the whole thing is about as Professor Stephen Littlechild is in any case due to end the regulatory uncertainty by the end of next month by publishing new price controls. Furthermore, it has become quite unlikely that Trafalgar would now actually make the promised bid until it knows the outcome of that review. So even if the dissident shareholders win, it may prove something of a Pyrrhic victory.

The principles involved are nonetheless important; the evidence for this is in the allegations of dirty tricks now flying as both sides limber up for the proxy battle. On almost every point the Northern board falls. It will be interesting to see just how far it is prepared to push the point. Legally, the dissidents need a 75 per cent majority to get their resolution adopted. In practice it would be hard for the board to stand firm with any less than majority support.

The Prudential is wrong in sticking to its usual stance of backing the incumbent management. The Northern board is allowed to refuse Trafalgar permission to put its new bid because takeover rules stipulate that once an offer lapses, the bidder is not allowed back for at least a year. The reason for this rule is that the Takeover Panel judges it to be unfair for a bidder to be allowed to lay permanent siege to a company. This case is different, however. Trafalgar lapsed its first bid because of force majeur, the regulatory review. As a consequence, Northern also lapsed its 24-carat defence, though saying it would try its best to deliver on what it had promised. In these circumstances it seems perfectly reasonable the contest should be allowed to resume at whatever price Trafalgar believes appropriate. Just as Northern doesn't know what it is dealing with until the outcome of the pricing review is known, nor does Trafalgar.

Northern might like to believe that its shareholders want to hang around long enough to see what may or may not be good news for them, but it is hardly the reality of the position. A very substantial number would be very happy to see Trafalgar shoulder the risk. Northern directors have enjoyed all the other benefits that come with private sector ownership. Now they must face up to its other consequence, the discipline of the market.

Hong Kong Scots sweep the field

Thank you and goodbye, Richard Delbridge, the respected finance director of HSBC, who yesterday presided over his last annual meeting at the group before retiring early. Career prospects for former Midland executives, like Mr Delbridge, have been a bit iffy since the bank was taken over. Now the rugby-mad Hong Kong Scots have the whole playing field to themselves. There isn't a Midland Bank man still on the board.

Start your day with The Independent, sign up for daily news emails
Sport
Seth Rollins cashes in his Money in the Bank contract to win the WWE World Heavyweight Championship
WWERollins wins the WWE World Heavyweight title in one of the greatest WrestleMania's ever seen
News
news
Arts and Entertainment
Jay Z has placed a bet on streaming being the future for music and videos
music
News
i100
Arts and Entertainment
tvPoldark, TV review
News
(David Sandison)
newsHow living on a houseboat meant I didn't officially 'exist'
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor