Pre-Budget Statement: Employee Shares: Staff can invest in their firms tax-free

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The Independent Online
THE GOVERNMENT is hailing the plans to encourage share ownership as creating "the most tax-advantaged all- employee share scheme ever seen in the UK".

Under the proposals, which Mr Brown said would be open to everyone in every firm, employers would be able to grant employees shares worth up to pounds 3,000 free of income tax each year, and employees would be able to buy a further pounds 1,500 of shares out of pre-tax income.

Taking that option would enable employees to have another pounds 3,000 of shares from their employer free of tax. All shares held for at least five years would be exempt from income tax and capital gains tax.

Businesses and their advisers were generally pleased by the move, but doubts remain about the detail, to be announced today. Sarah Hyde, a tax partner with accountants Ernst & Young, said Mr Brown claimed the scheme would be "open to everyone in every firm", but it was as unclear whether it would be applied to privately owned as well as publicly quoted companies.

Alex Henderson, tax partner with Arthur Andersen, was worried about possible complications and restrictions, a view echoed by Brian Gilligan, tax partner with BDO Stoy Hayward, who said there was a danger a good idea would be surrounded by so many measures designed to protect revenue that it would be almost neutralised.

Sally Russell, head of employee share ownership at ProShare, the organisation that promotes wider share ownerships, saw the move as "very important". It would provide companies with a lot of flexibility to design schemes that suited their needs, "something that has been missing from ongoing legislation".

She suggested the proposals had answered concerns about complexity by doing away with distinctions in how employees had acquired the shares. By making the proposals less complex, they should make it easier and cheaper to administer schemes. The Chancellor had "given the impression of trying to do something that's workable and constructive", she added.

Advisers were less optimistic about Mr Brown's hopes that the measures would encourage employees and companies to "consider investing in their future" instead of being tempted into inflationary wage rises. That was "Cloud-cuckoo- land", said Ms Hyde, pointing out that in a highly competitive jobs market employees could not be expected to put off extra wages now in the hope of making a gain in the future.

Mr Gilligan agreed, saying there were doubts about whether the five- year qualifying period for CGT exemption would be workable, given the fact that there was a growing tendency to job-hop.

There was more support for the parallel proposal for enterprise management incentives, allowing small, higher-risk companies to offer up to 10 key employees options over shares worth up to pounds 100,000 when the option was granted.

This would be taxed under a "favourable" CGT regime on the sale of the shares rather than as income at the exercise of the options.

There are fears that movewill be restricted to a small number of companies.

Roger Trapp