UK News

Autumn budget: tax points for HR published

August 2018

On 6 July 2018, the government published draft legislation to be included in this autumn’s budget. There are no radical changes to the personal taxation regime proposed in the draft legislation, or to the legislation governing employee share plans. There are, though, two proposed changes which may well be beneficial for employees.

Entrepreneurs’ Relief

The government proposes a slight relaxation of the rules around entrepreneurs’ relief, so that individuals whose shareholdings in their employing company (or the holding company of their employing company) qualify for the relief will not be penalised when their shareholding is diluted below the 5% qualifying threshold because a new investor has subscribed for shares. 

Capital gains which qualify for entrepreneurs’ relief are taxed at a rate of 10% (rather than the top capital gains tax rate of 20%) up to a lifetime limit of £10 million. One of the qualifying criteria for the relief to be available is that the individual shareholder holds 5% or more of the ordinary share capital of the relevant company. Under the current law, a shareholder qualifying for the relief would cease to be eligible for it in the event that his or her shareholding was diluted below 5% by a new investor subscribing for shares. The draft legislation proposes to allow a shareholder to elect to crystalise the relief by reference to the value of his or her shareholding immediately before it was diluted below the 5% qualifying limit, and to benefit from the relief on that crystalised value when the shares are eventually sold. Any future increase in the value of the shares would not benefit from entrepreneurs’ relief. 

Beneficiaries of tax-exempt death-in-service benefits

Currently, employer contributions to arrangements which provide death-in-service benefits for employees are exempt from tax only where the beneficiary or beneficiaries of the death-in-service benefits fall within a specified group of people (broadly, the employee’s spouse or civil partner, children and dependents).

The draft legislation removes the requirement for the nominated beneficiary or beneficiaries to fall within this narrow group. This will allow the employee to nominate any person, or a registered charity, as beneficiary of their death-in-service benefits, without causing the employer contributions to such arrangements to be a taxable benefit. The government considers that this removes an unfair distinction between couples who are married or in a civil partnership and those couples who have chosen not to enter into a formalised relationship. Allowing charities to benefit is consistent with the government’s policy of providing tax relief on charitable giving. A link to the draft legislation and explanatory notes can be found here.

For further information on how we can help please contact Alasdair Friend, Partner (Compensation & Benefits) on +44 203 051 5711, or email us.