Clarke rethinks share-option tax

PETER RODGERS

Business Editor

A second government climbdown on the taxation of share options is on the cards following heavy lobbying by the Institute of Directors, the CBI and Tory MPs.

Kenneth Clarke, the Chancellor, is considering proposals for the Budget which, if accepted, would mark a renewed retreat from the outright ban he announced in the summer on capital gains tax relief for executive share options.

The first retreat, within days of the original decision, was to drop the idea of making the tax bite retrospectively.

It emerged yesterday that the IoD, whose president is the former Tory cabinet minister Lord Young, saw Mr Clarke last week to press for a restoration of CGT relief for share options up to a fixed ceiling. This would be to the value of pounds 40,000 or the employee's salary, whichever is the less.

The CBI has also written to Mr Clarke with a less ambitious proposal to amend the terms of the new treatment of share option profits, now subject to income tax at the time of exercise. The CBI wants the profits taxed only when shares are sold, to encourage employees to hold on to their shares.

Mr Clarke insisted in the summer that the entire profit should be taxed on exercise of the options, whether or not some of the shares are kept. The CBI proposal to delay the tax is also part of the IoD submission and both sets of changes are believed to be under serious consideration by the Treasury.

Lord Young was not part of the IoD delegation which met the Chancellor, which was led by Tim Melville-Ross, the IoD director general, who was a member of the Greenbury Committee on executive pay.