Autumn Budget 2024: Key takeaways for employee share plans

The Autumn Budget 2024 was announced on 30 October 2024.  Our tax colleagues have published a full briefing here.

From an employee share plans perspective, the key takeaways are:

• Rates of Capital Gains Tax (CGT) on the sale of shares will increase from 10% to 18% and from 20% to 24% respectively from 30 October 2024 (but no changes have been announced to the £3,000 annual exempt amount).
• The disproportionately large increase in CGT rates for lower earners could impact lower paid employees who participate in a company's all-employee Save-As-You-Earn / Sharesave schemes, although in the ordinary course participants would still be able to transfer their shares into an ISA within 90 days of exercise and avoid paying CGT (subject to the overall limit of £20,000 of contributions into an ISA per tax year, which has been retained). This disproportionate CGT rate increase may impact on take-up by lower earners, with a consequential long-term impact on their financial well-being and engagement.
• The main rate of employer's National Insurance contributions will increase from 13.8% to 15% from 6 April 2025. This will be relevant not just to employers but also to employees who are required by their employers to bear the employer's National Insurance liability on share awards.
• CGT rates for Business Asset Disposal Relief (formerly Entrepreneurs' Relief) will rise to 14% from 6 April 2025 and to 18% from 6 April 2026 (the £1 million lifetime limit has been retained).  The continuing availability of Business Asset Disposal Relief could be useful for the holders of EMI options provided the relevant conditions are met.
• No changes have been announced to the rates of income tax on dividends or to the £500 per tax year dividend allowance.

The Chancellor also announced that there will be anti-abuse reforms to the taxation of Employee Ownership Trusts and Employee Benefit Trusts, which will be effective from 30 October 2024.  These include a requirement for the trustees of an EOT to take reasonable steps to ensure that the consideration paid on disposal of shares to the trustees of an EOT does not exceed market value, additional restrictions on dispositions to an EBT by close companies and a requirement for individuals to have held shares for two years prior to settlement into an EBT in order to qualify for an Inheritance Tax exemption.

There will also be changes to the taxation of carried interest arrangements, with the applicable rate of CGT increasing to 32% from 6 April 2025. From 6 April 2026, carried interest will then be subject to the income tax/NIC framework, with bespoke rules which will allow a discount to the taxable amount provided that the carried interest meets certain qualifying conditions.