by Stuart Rock - Friday, 25th January 2008 -

Darling's CGT announcement hits entrepreneurs and employee share schemes.

At first sight, Alistair Darling's new proposals on CGT looked clever. I thought that they would mean that share option holder-employees would benefit from the new low rate of CGT.

Along with the small business owner looking to sell up at retirement, this means another group of people would not be penalised.

But no. I'm indebted to PKF for this press release:

PKF Employee Taxes partner Philip Fisher points out that, unless they own more than five per cent of the shares in their company, from 6 April when the new rules are introduced, employees will be paying 18% tax on any gain over their annual £9,200 exemption. Under the current rules such employees could realise gains of up to £36,800 without paying any tax with a maximum liability of 10%.

Fisher says: "This is going to hit employee share ownership schemes very hard. Ordinary workers who have contributed to the success of a business will be wondering why they are paying for company owners' tax breaks. It is manifestly unfair.

"With the Treasury setting the 5% ownership level for the so-called 'entrepreneurs relief', this looks like a deliberate downgrading of employee share schemes. Employees in large companies may have significant funds invested in their employer but most will be nowhere near to 5%. Employees in smaller companies may much smaller investments but still own 5% of the shares. Such uneven treatment can't be right.

Elsewhere, ifsProshare reckons that the new flat rate of 18% could hurt more than 270,000 Save As You Earn (SAYE) employee shareholders.

In other words, it's another fine mess you have got yourself into, Alistair.

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