§ Mrs. Curtis-ThomasTo ask the Chancellor of the Exchequer what assessment he has made of the impact of the increase in capital gains tax on share options in each year since 1996. [124759]
§ Dawn PrimaroloThere is no Capital Gains Tax (CGT) on the exercise of share options. CGT may be payable when shares acquired on exercise of the options are sold if the gains exceed the annual exempt amount. The effective rate of CGT depends on the size of the gain, whether the shares were business or non-business assets, and how long the shares have been held. The effect of taper relief is to reduce the tax on gains the longer the shares are held. CGT taper relief normally runs from the date that the shares were acquired.
The November 1999 Pre-Budget Report announced the intention to make further improvements in CGT in order to promote productivity. Following consultation, the Budget announced proposals to improve the CGT treatment of shares owned by employees and officers in the trading companies in which they work. For periods from 6 April 2000 such shares will be treated as business assets, and will benefit from more generous taper rates. Business asset treatment applies whether the shares were acquired through share options or by other means.
The Government are introducing in the current Finance Bill two new employee share plans. Under the All Employee Share Plan, employees who keep their shares in the plan until they sell them will have no CGT to pay however great the increase in value of those shares. In addition, under the Enterprise Management Incentive (EMI) scheme, companies will be able to grant each of their key employees share options worth up to £100,000, normally without any Income Tax or National Insurance charge on exercise. When the shares are sold, CGT taper relief will normally start from the date the options were granted.