Introduction Background
27.Since 23 June 2010 capital gains tax for individuals has been charged at the rate of either 18 per cent or, for those paying the higher rate of income tax, 28 per cent.
28.Individuals may claim entrepreneurs’ relief, under which qualifying chargeable gains are taxed at 10 per cent, on gains on disposals of shares in or securities of a company provided that throughout the period of one year immediately preceding the disposal (a) the claimant held a minimum five per cent stake in the company, (b) the company was either a trading company or the holding company of a trading group, and (c) the claimant was an officer or employee of the company or of one or more companies of a trading group to which the company is a member. There is a lifetime limit to the relief, which was increased to £10 million from 6 April 2011.
29.Entrepreneurs’ relief is also available on the disposal of shares of a business where the conditions (a) to (c) at paragraph 28 above were met throughout the period of one year immediately preceding the company ceasing to be a trading company without continuing to be or becoming a member of a trading group, or ceasing to be a member of a trading group without continuing to be or becoming a trading company and that date is within the period of three years immediately preceding the disposal. The relief may apply, for example, to the deemed disposal by a shareholder of his interest in shares when he receives a capital distribution on the liquidation or winding-up of a trading company.
30.The Enterprise Management Incentives (EMI) scheme provides tax and National Insurance contributions advantages for qualifying share options granted by companies with gross assets not exceeding £30 million, to help them recruit and retain employees. In addition to the gross assets test, EMI is limited to companies or groups which are independent and whose trade does not consist in excluded trading activities.
31.Budget 2012 announced the Government’s intention to allow EMI shares to qualify for Entrepreneurs’ Relief on disposal by the employee/officer.
32.A number of representations were made to the Government that the normal rule that requires ownership of the qualifying shares for one year prior to disposal (see paragraph 28 above), would limit the ability of EMI shares to qualify. This was because EMI options would typically be exercised just before the employing company was taken over, meaning that they would then not be owned by the employee for one year.
33.The Budget further announced that the measure would apply to shares acquired under the EMI scheme from 6 April 2012, but the one year share holding period meant it would have no effect for disposals made before 6 April 2013.
34.The legislation similarly applies to shares acquired on or after 6 April 2012 and disposed of on or after 6 April 2013 but allows the period the share option is held to be included towards the one year holding period requirement.
35.The legislation includes rules that modify the usual operation of the share identification rules in order to treat shares issued under the EMI scheme separately.
36.The inclusion of shares acquired from 6 April 2012 will affect the computation of gains on any disposal of shares of the same class during the tax year 2012-13. Therefore the new legislation will apply where there were such disposals only on the making of an election.