On 13 September, CityAM reported that calls are growing for the government to carve out an allowance on capital gains tax (CGT) for employee share schemes amid fears a sweeping hike could gut the UK of talent and hammer smaller companies’ ability to attract staff. It said, “a group of fintech founders yesterday launched a push to derail any plans for a blanket hike in CGT by calling for an allowance on so-called ‘earned capital gains’, which could protect the shares held by staff in their own companies.”

In addition, the Quoted Companies Alliance (QCA) made a budget submission, adding to the calls with a push for the Treasury to exempt gains made under employee share schemes from any CGT increase.

“We consider that a simple rise in CGT would reduce people’s appetite to invest, result in individuals moving abroad, harm entrepreneurship and growth within the UK, and ultimately, could potentially raise less tax,” the QCA said in its submission.

“For the growth of the economy, it is essential that business leaders are willing and able to invest in growing their business and hiring staff.”

Any increase in CGT could “materially decrease the attractiveness of employee share ownership and seriously weaken the growth company ecosystem,” the QCA added.

The Esop Centre agrees with the both the fintech founders and the QCA. It had already warned of the detrimental effect of CGT hikes, and reductions in the annual CGT exempt amount on employee share scheme participants, in its response to the HM Treasury Call for Evidence on non-discretionary tax advantaged share schemes.

The UK has a significant productivity deficit, and there is a serious danger that CGT increases will hit both risk intensive business in technology, where share plans offset the risk of failure, and could also impact employee engagement in a whole swathe of industries.

In July 2023, newspad reported on a letter to the then Chancellor Jeremy Hunt, drawing to his attention the significant, and possibly unintended, effects of his reductions in annual CGT exemptions on employees in SAYE schemes. In the letter, the Centre said, “Enabling employees to participate in the growth in value of shares in their employer companies to which they contribute through their labour has long been accepted by all political parties as a policy worthy of support. The call for evidence on non-discretionary tax-advantaged share schemes, launched in June 2023, indicates that there is a continued interest in ensuring the attractiveness of these arrangements.

“In advance of the Call for Evidence on SIPs and SAYE share option schemes, the Esop Centre would call upon the Chancellor to include in the current Finance Bill a provision which exempts from CGT any amount of gain (or an amount of gain up to, say, £12,000 per year) realised upon the disposal of shares acquired pursuant to an SAYE share option.

“This would go a long way to restoring the former attractiveness of SAYE share options, for lower-paid employees in particular, and avoid what could become a significant compliance issue as a consequence of the need for employees to report chargeable gains on SAYE option share disposals.”