Autumn Budget 2024 – Share incentives

All the UK's tax-advantaged share plans remain in place following the Budget, with no change to individual limits. In a Budget which increases costs for most UK employers, this may be a ray of light.

For share plan participants, whilst CGT rates are to increase, the income tax versus CGT differential means that participation in tax-advantaged plans and share ownership plans will remain a valued benefit.

 

National Insurance: Employer Contributions

For the tax year 2025/2026, the rate of employer National Insurance Contributions (NICs) will rise to 15%.

Although gains on share incentives fall outside of the prohibition on employers requiring employees to reimburse employer NICs, in practice many employers do not pass on this cost to employees. This change is therefore a real cost for employers. In general, tax-advantaged share plans offer an opportunity to deliver value to employees without a corresponding employer (or employee) NIC charge and so the increase is a reminder that employers who can offer tax-advantaged plans should consider doing so.

 

CGT Rates

From Wednesday, 30 October, the CGT rates applicable to shares will be 18% standard rate (basic rate taxpayers) and 24% higher rate (higher and additional rate taxpayers). The Business Assets Disposal Relief (BADR) rate will increase more slowly (up to 14% from 6 April 2025 to 18% in 6 April 2026). The CGT rate on Carried Interest will increase to 32% from 6 April 2025 and then will move to align with the Income Tax framework from 6 April 2026.

Many share incentives, including the tax-advantaged share plans, allow employees to access CGT tax treatment and are free from NIC. The increase in CGT rates does, therefore, impact share incentive participants if they dispose of shares, but CGT rates remain below income tax rates meaning that those incentive arrangements continue to provide tax advantages as well as the wider benefits of employee recruitment, retention and motivation. Employers who are not utilising all of the available plans may wish to consider broadening their offering. For example, allowing employees to purchase shares within the wrapper of a Share Incentive Plan, in addition to Sharesave options, will allow employees to purchase shares out of pre-tax salary which may be appealing. Similarly, employers may look at granting Company Share Option Plan options or broadening the levels within the workforce at which such options are available. Options over GBP60,000 worth of shares may be granted to each employee and any gains are subject to CGT and not subject to NICs.

The phased approach to the introduction of BADR relief is intended to allow business owners time to adjust to the changes and there may be some circumstances in which the timing of sales can be advanced.

HMRC recently published a bulletin to highlight issues for share plan participants who must now consider CGT and dividend tax reporting and payment following reduction in the annual allowances. Employers may consider making available resources to participants to assist with awareness and practical steps.

 

Tax compliance

The Chancellor drew particular attention to the 'folly' of increasing taxes on those who pay and not pursuing those who do not. Funding for HMRC, in terms of staff and systems, is therefore to be increased and the interest rate on unpaid tax will be increased from April 2025.

 

Employee Ownership Trusts

As expected, following the Taxation of Employee Ownership Trusts and Employee Benefit Trusts consultation which closed on 25 September 2023, the government have announced they are introducing a package of reforms to the taxation of employee ownership trusts and employee benefit trusts. These reforms will prevent opportunities for abuse, ensuring that the regimes remain focused on encouraging employee ownership and rewarding employees.

We would not expect these changes to affect the attractiveness of the employee ownership trust as an ownership structure or use of employee benefit trusts for legitimate purposes.

 

All-employee plans

We were expecting to see some proposals in respect of the Sharesave and Share Incentive Plans following the Call for Evidence on Non-Discretionary Tax Advantaged Share Schemes published in Spring 2023. The call for evidence triggered a number of organisations and issuers to call for a modernisation of the all-employee plans to allow them to better service employers. It is not immediately apparent that the government intend to present anything in this area.

 

Should you have any queries on the Autumn Budget, please reach out to your usual UK tax contact or one of the following.