The Labour Party’s proposed tax increases will hit hundreds of thousands of employees who are basic rate taxpayers.
Under a Save As You Earn (SAYE) Share Option Scheme, employees make monthly savings for three or five years and then get the chance to use their savings to buy shares in their company at a price fixed at the start of the savings period. If the price has gone up, employees make a gain which is subject to capital gains tax. The first £12,000 of gains in a tax year are tax-free but Labour proposes to reduce the exemption to £1,000.
HMRC statistics reveal that over the past three years 460,000 employees have cashed in SAYE gains in excess of £1.4 billion, so an average gain of just over £3,000. That gain is currently tax-free. Under Labour’s policy, an average employee will pay capital gains tax of £400 (20 per cent of £2,000).
A topical example is Asda which offers an SAYE scheme using shares in its parent, Walmart. Earlier this year, 25,000 Asda employees made an average gain of £3,040.50 on savings begun in 2016.
David Cohen, founder of the Share Plan Lawyers Group and consultant at Keystone Law said:
“Labour’s changes to CGT would really take the gilt off SAYE share schemes. Very few employees will be covered by a £1,000 exemption; many make full use of the current £12,000 exemption. If these changes are implemented, employees are likely to migrate from SAYE to the Share Incentive Plan, gains under which enjoy an unlimited exemption from CGT. But Share Incentive Plans are financially riskier for employees.”