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2014 Budget: key share schemes announcements
Practical Law UK Legal Update 7-561-2845 (Approx. 6 pages)
2014 Budget: key share schemes announcements
| Published on 19 Mar 2014 • United Kingdom |
The 2014 Budget contained a number of announcements relevant to share schemes and incentives. (Free access.)
Speedread
The Chancellor delivered the 2014 Budget on 19 March 2014. There were no major changes relevant to share schemes and incentives practice in addition to those already announced in the 2013 Autumn Statement. Most of the measures announced in the 2013 Autumn Statement were confirmed. These include a package of measures relating to tax-advantaged share schemes (in particular, replacing the current system of pre-approval with self-certification) and changes to non tax-advantaged share schemes. However, the changes relating to the taxation of employment-related securities and awards held by internationally mobile employees will now come into force in 6 April 2015, rather than 1 September 2014, as previously announced.
In some cases, technical amendments will be made to the draft legislation that was released on 10 December 2013, but limited detail about these amendments was contained in the budget documents published on 19 March. (However, since first publishing this update, the Budget Resolutions were published on 20 March 2014, which contained some revised legislation. For more information, see Legal update, 2014 Budget Resolutions: employee share schemes.) The Finance Bill 2014 will be published on 27 March 2014.
The government will consult on two measures recommended by the Office of Tax Simplification, including introducing the concept of a marketable security to the taxation of employment-related securities.
To see all Practical Law's 2014 Budget coverage, see Practical Law 2014 Budget.
OTS recommendations on tax-advantaged employee share schemes
The government has confirmed that it accepts the Office of Tax Simplification's (OTS) recommendations in relation to tax-advantaged employee share plans. Draft legislation to make these changes was published on 10 December 2013. For more information, see Practice note, Employee share schemes and Finance Bill 2014: summary of changes.
There will be several minor technical modifications to the draft legislation as a result of consultation. More information about this will be available when the Finance Bill is published on 27 March 2014, but amendments include those relating to self-certification declarations and SIP forfeiture provisions.
(See Overview, paragraph 1.9.)
Share incentive plans
The 2014 Budget confirmed that the increases in the annual limits on partnership shares and free shares under a share incentive plan (SIP) announced in the 2013 Autumn Statement will go ahead in Finance Bill 2014 (see Legal update, 2013 Autumn Statement: share schemes and incentives implications: SAYE and SIP limits increased).
From 6 April 2014, the limits will increase:
- From £1,500 to £1,800 per tax year, for partnership shares.
- From £3,000 to £3,600 per tax year, for free shares.
It was also announced that the SIP legislation will be amended to allow future adjustments to SIP limits to be made by Treasury Order.
The increase in the limit for monthly contributions under an SAYE option scheme announced in the 2013 Autumn Statement will come into force on 6 April 2014 by Treasury Order (see Legal update, SAYE option schemes: order to increase savings limit made (with effect from 6 April 2014).
(See HM Treasury: 2014 Budget, paragraph 2.77 and Overview, paragraph 1.8.)
OTS recommendations on corporation tax relief and non tax-advantaged employee share schemes
Finance Bill 2014 will contain provisions to implement the OTS's recommendations in relation to non tax-advantaged employee share plans and the extension of corporation tax relief. There will also be secondary legislation where appropriate.
It appears that the following changes will go ahead as planned:
- Rollover of restricted securities.
- Rollover of securities subject to a notional loan charge.
- The extension of the time period within which an employee can make good PAYE and avoid a charge under section 222 of the Income Tax (Earnings and Pensions) Act 2003.
However, the changes in relation to the income tax, NICs and corporation tax treatment of employment-related securities and options held by internationally mobile employees, and corresponding changes to corporation tax relief, will not take effect until 6 April 2015, not 1 September 2014 as originally planned. However, instead of the new legislation applying only to securities acquired on or after 1 September 2014, it will apply to any awards existing on 6 April 2015, including those awarded before that date. For more information about the changes announced in December 2013, see: Practice note, Employee share schemes and Finance Bill 2014: summary of changes: Non tax-advantaged arrangements and amendments affecting all share schemes.
(See HM Treasury: 2014 Budget, paragraph 2.214, Overview, paragraph 1.10 and HM Government: Budget 2014: policy costings, page 34.)
OTS review of unapproved share schemes: further consultations on marketable securities and employee shareholding vehicles
The 2014 Budget includes an announcement that government will consult on two OTS proposals in relation to non tax-advantaged share schemes. The two proposals on which the government will consult are:
- The introduction of the concept of a "marketable security", so that employment-related securities are taxable only when they actually become marketable.
- A safe harbour "employee shareholding vehicle" (most likely an employee benefit trust (EBT)) which would, if it met certain requirements, enjoy clear reliefs from certain tax provisions.
In its response to the OTS review of unapproved share schemes, the government previously indicated that it would review these two proposals before deciding whether to pursue them further. For more information, see Legal update, HM Treasury response to OTS recommendations on unapproved share schemes: Proposals to be considered further.
(See HM Treasury: 2014 Budget, paragraph 2.214, Overview, paragraph 2.11 and Letter from David Gauke MP to OTS.)
Employee ownership trusts
The Chancellor has confirmed that the proposed tax incentives for "employee ownership" trusts will not be changed following a consultation on the proposals. The measures, which were announced in the 2013 Autumn Statement, include a new capital gains tax relief for qualifying disposals to an employee ownership trust (see Legal update, Draft Finance Bill 2014: employee ownership measures). In the draft Finance Bill 2014 clauses released in December 2013, the qualifying conditions for such a trust were extremely narrowly drafted and would exclude the majority of existing EBTs. For more information, see Practice note, Employee share schemes and Finance Bill 2014: summary of changes: Employee ownership measures.
(See HM Treasury: 2014 Budget, paragraph 2.71, Overview, paragraph 1.77 and Notes on Finance Bill Resolutions, paragraph 84.)
Other developments relevant to share schemes
Finance Bill 2014 will include a number of other provisions that will be of interest to share schemes practitioners, including:
- Major changes to the taxation of pensions.
- Legislation dealing with dual-employment contracts by non-domiciled individuals.
- An increase in the de minimis limit for beneficial loans from £5,000 to £10,000.
- Changes to relief for interest payments for loans to buy an interest in a close company.
- Proposals to consult on a number of OTS recommendations following its review of employee benefits and expenses.
For summaries of other announcements in the Budget, see Practical Law 2014 Budget.