The Budget: Rules eased for employees with company shares

Capital Gains Ta

There were measures that went some way to simplifying the notoriously complex rules governing capital gains tax (CGT) with proposals that should make it easier for employees to benefit from shares they hold in their own company.

There were measures that went some way to simplifying the notoriously complex rules governing capital gains tax (CGT) with proposals that should make it easier for employees to benefit from shares they hold in their own company.

Under the change any employee holding less than 10 per cent of the shares in his or her firm can benefit from the favourable CGT allowance known as business-rate taper relief.

This means that those who hold shares in their firm for four years or more will only be taxed on 10 per cent of any gain that they make. The amount of tax exempt capital gains that can be made each year, meanwhile, will rise in line with inflation to £7,500.

Yesterday Gordon Brown introduced much-needed clarification over who could benefit from the taper relief by doing away with complicated definitions about which types of companies qualify for the relief.

Alex Henderson, tax partner at the accountants Andersen, said: "We are delighted that the Chancellor has listened to taxpayers and introduced this overall simplification."

Until now, those with shares in certain unquoted companies and venture capitalists could not benefit from the taper relief. This was onerous for many employees with small holdings because they had to consult accountants about what relief they were entitled to claim. Now the relief applies to all companies that are quoted (meaning their shares are listed in the City) unquoted and venture capital companies.

In contrast, those with shares in other assets, known as "non-business assets", receive a much lower rate of taper relief. This group must hold their shares for 10 years or more to receive the maximum relief and then they must still pay CGT on 60 per cent of their gain.

Mr Brown first made business taper relief available to employees holding shares in last year's Budget in an attempt to encourage employees to take a stake in their own companies.

While this opportunity has been welcomed, financial advisers were disappointed that CGT was not simplified. David Hanratty, of the independent financial advisers NelsonMoney Managers, said: "The Chancellor made CGT more complicated right at the time that self assessment of tax was introduced. It is an absolute disaster zone for private individuals trying to work out their tax bill."

However, there was some respite for investors who hold shares in overseas companies. In the past investors who hold foreign shares via companies in tax havens such as Jersey have been hit with CGT if they own more than 5 per cent of the holding company. As of April, this group will only be affected if they hold more than 10 per cent.