Budget 2016: Shares for rights gains capped at £100k

Chancellor George Osborne has capped gains from his controversial employee shareholder policy.

The so-called shares for rights model was introduced under strenuous objections during the previous coalition government as one of the Chancellor’s flagship policies.

However he has now been forced to introduce a lifetime allowance cap to limit participants’ gains and raise taxes.

The £100,000 lifetime cap to Capital Gains Tax (CGT) will be enforced for all arrangements entered in to from 17 March.

It is expected to raise £10m in 2019-20 and £35m in 2020-21.

HM Treasury noted: “The government believes that employee shareholder status (ESS) provides vital flexibility for early stage firms, and that it is right that employee shareholders receive tax benefits on shares awarded in exchange for relinquishing certain employment rights. However, the government wants to ensure that the benefits for individuals are proportionate and fair.

“Budget 2016 introduces an individual lifetime limit of £100,000 on gains eligible for CGT exemption through ESS. This limit will apply to arrangements entered into on or after 17 March 2016, and will not apply to arrangements already in place. This change will enable employee shareholders to realise a significant growth in the value of their shares without paying any CGT, whilst helping to ensure that the status is not misused,” it added.

However, in a countering move, Osborne announced that the higher and lower rates of CGT would be cut from 6 April. These will fall to 10% from 18% for the lower rate and to 20% from 28% for the higher rate.