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July 2015 Budget: share schemes and incentives implications
Practical Law UK Legal Update 5-617-2021 (Approx. 3 pages)
July 2015 Budget: share schemes and incentives implications
| Published on 08 Jul 2015 • United Kingdom |
The Chancellor, George Osborne, delivered the July 2015 Budget on 8 July 2015. This update summarises the key developments relevant to share schemes practitioners. (Free access.)
On 8 July 2015, George Osborne delivered his first Budget of the new Parliament. As expected, there were very few announcements directly relevant to share schemes.
The only change to the law directly affecting share schemes relates to enterprise management incentives (EMI) options, and the list of excluded activities set out in paragraph 16 of Schedule 5 to the Income Tax (Earnings and Pensions) Act 2003. Farming and market gardening are excluded activities for EMI purposes. "Farming" is defined in section 996 of the Income Tax Act 2007. Section 996(7), which restricts the definition of farming and market gardening for EMI purposes to the occupation of land in the UK, will be repealed so that farming will be an excluded activity wherever the land in question is situated. The draft legislation to effect this change will be included in the Finance (No.2) Bill 2015. The change will also affect EIS and VCT relief. (See HMRC: Income Tax: amendments to tax-advantaged venture capital schemes: TIIN.)
Other developments that may be of interest to share schemes practitioners include:
- The overhaul of dividend taxation, including the abolition of the current system of dividend tax credits, which will be replaced by a single dividend allowance of £5,000. Above this, dividends will be taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers. These changes will take effect from 6 April 2016 (see HM Treasury: Summer Budget 2015, paragraphs 1.185 to 1.189 and Overview, paragraph 2.57). The documents make reference to reducing the incentive to incorporate and pay remuneration in dividends.
- Changes to the capital gains tax (CGT) rules for investment managers' carried interests, to block arrangements that seek to reduce the amount chargeable to CGT. The materials make it clear that the government is not reviewing the capital gains treatment of carried interests generally. (See HM Treasury: Summer Budget 2015, paragraph 1.177 and 2.179 and Overview, paragraph 2.179.)
- A statement that the government will be "monitoring" the use of salary sacrifice arrangements (see HM Treasury: Summer Budget 2015, paragraph 1.197).
- A statement that the government will consult on "tackling the use of unfunded EFRBS to obtain a tax advantage in relation to remuneration" (see HM Treasury: Summer Budget 2015, paragraph 2.80).
For information about the key business tax announcements, see Legal update, July 2015 Budget: key business tax announcements and for private client announcements, see Legal update, July 2015 Budget: key private client tax announcements.