Unintended consequences of one of the anti-avoidance measures in the Budget?

William Norton is a non-practising solicitor with over fifteen years’ experience providing
tax and business advice in the City of London. He was a member of the
permanent staff at the James Review and has been on the advisory panel for tax
affairs and legislation to the Conservative front bench since 1998. He
has written a chapter for the upcoming TPA book How to Cut Public Spending (and
Still Win an Election)

One of the smaller measures to “protect revenue” in the Budget – raising so little the Chancellor does not even guess at how much – is the announcement that Company Share Option Plans (CSOPs) will no longer be permitted over shares in the subsidiaries of listed


CSOPs are limited to shares worth only £30,000 on grant but (unlike most share options) the gains made by the
employee are exempt from income tax.  This makes them extremely popular
and they can make a significant difference to the take-home reward of junior
and middle-ranking staff.  They are not meant for fat cats.


The Government’s move is probably meant to close down a potential loophole with the new 50% tax on bonuses. 
A listed bank, say, could establish a dummy subsidiary with a low value, allowing staff to receive CSOPs over lots of shares up to the £30,000 limit, and then use its power of control, or special rights attaching to the shares, to artificially inflate the value of the option to deliver tax-free gains for fat cats.


If that was the idea then most people would probably say it was all well and good – except that the draft
legislation will affect far more innocent categories of employee.  Suppose
you work in a business owned by a listed private equity house or financial
institution (not uncommon these days).  Until Budget Day employees could
have been rewarded with CSOPs linked to a sale or flotation of the business, so
that they received a tax-free windfall when investors made their return. 
Alternatively, a listed conglomerate could be planning to spin-off a non-core
division and might sensibly want to lock-in the workforce by granting them
CSOPs in the new entity.  Not any more they can’t.


Alistair Darling could have achieved his anti-avoidance objectives with a specific and targeted piece of
legislation.  Instead he went for a broad-brush one-size-fits-all approach
which catches the innocent in worthwhile situations.  So, no change there.

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