Finance Bill 2016: representations on employer shares

Clarification of policy sought

As part of our public interest remit to help make the provisions of Finance Bill 2016 workable and sensible, the ICAEW Tax Faculty has submitted representations on clause 77, the Employee shareholder shares (ESS) exemption limit. We have asked for the policy reason for the new lifetime cap of £100,000 on gains from ESS to be clarified, see ICAEW REP 95/16

Clause 77 of Finance Bill 2016 provides that in relation to ESS issued after 16 March 2016, there will be a new lifetime limit of £100,000 on the CGT exempt gains that can be made by an employee. Any gains in excess of this will be subject to CGT. This will apply alongside the existing limit, which is that any gains arising on ESS shares that have been acquired up to a value of £50,000 are exempt from CGT. 

We agree with the Government view that the ESS rules should be fair and proportionate and not open to abuse, which is how the advantages of ESS are explained in the Finance Bill Explanatory Notes. However, we are concerned that even though the relief has been in place for only three years, the Government is now looking to scale it back, while at the same time, for example, extending ER to long term investment in unlisted shares. This appears to be a confusing policy approach. Before legislating changes, we would have expected a review of ESS and its effectiveness in achieving the original policy objective to support any changes to it. This is particularly so given that on the face of it the change will not raise a significant sum of money. In addition, the legislation for this relief is currently complicated and having two limits will make it more so.