The Budget statement of 12 March 2008 contained the following measures affecting UK employee share schemes :

EMI options include

Increase of the individual limit on value of shares from £100,000 to £120,000; and

EMI no longer being available for companies with 250 employees or more or whose trade is shipbuilding, coal or steel production (these changes are stated to be required to ensure compliance with EU state aid guidelines).

Our comments:

The increase in the limit will be welcomed by many companies.  It will only apply in respect of options granted from 6 April 2008, allowing qualifying companies to grant new or additional EMI options up to a new personal limit of £120,000.  It will not enable options previously granted over shares worth more than £100,000 to be brought within EMI.

Although most companies granting EMI options have fewer than 250 employees, some do employ more than this number.  From the date the 2008 Finance Bill obtains Royal Assent, those companies will not be able to grant further EMI options and so may need to consider alternatives.

CGT on disposals of shares

The CGT rate is to become a fixed rate of 18% as previously indicated, with a 10% rate where entrepreneurs’ relief is available. 

Our comments:

Entrepreneurs’ relief will be available in respect of shares which have been held by an employee or director at least one year between option exercise and sale,  where that person held at least 5% of the company with at least 5% voting rights.   Crucially, in respect of share options (including EMI) this one year period will only begin to run when the options are exercised and not when they are granted.

Directors or employees already holding 5% or more may wish to check whether future events could take them to below 5%, for example the issue of new shares to investors or the exercise by other employees of share options .  Where this happens, it may sometimes be possible to preserve entrepreneurs’ relief by taking action at the right time.

For more information on how entrepreneurs’ relief will affect UK employee share schemes, please click on this link which takes you to our analysis prepared previously: http://www.postlethwaiteco.com/changes-pre-budget-report

Other points covered

The Budget also announces:

Some anti-avoidance measures relating to the taxation of employment-related securities; and