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Insight

Autumn Statement 2014 – Graeme Nuttall OBE's contribution to PLC’s Leading Experts Article

It's as if the Coalition Government wants to keep an employee ownership and employee share schemes "to do" list for the next administration. After postponing the abolition of the perpetuities period It's as if the Coalition Government wants to keep an employee ownership and employee share schemes "to do" list for the next administration. After postponing the abolition of the perpetuities period for employee-ownership trusts it has now rejected the Office of Tax Simplification employee shareholding vehicle proposal. Acknowledged as "creative and far-reaching" by HMRC the rejection of this proposal is disappointing.

Para 2.135 of the 2014 Autumn Statement, headed OTS review of non-tax-advantaged share schemes: employee shareholding vehicle ("ESV"), states simply "Following consultation launched after Budget 2014, the government has decided not to proceed with a new employee shareholding vehicle".

Offshore trust administrators and tax advisers will be relieved. The ESV was a serious threat to fee income. If implemented in full the ESV would have provided an onshore capital gains tax efficient alternative to an offshore employee trust and a solution to the loan participator charges that can arise when lending to an employee trust and other long-standing technical issues with the warehousing and market making of shares for use in employee share schemes.

Perhaps the ESV proposal was too ambitious but surely something will be done about the loan to participator rules to help the nascent employee-ownership trusts buy-out market? No, para 2.154 of the 2014 Autumn Statement refers to its review of the loan to participator rules and announces "The government does not intend to make any changes to the structure or operation of the [loan to participator] tax charge following this review".

HM Treasury and HMRC has published ESV: summary of responses (December 2014) which explains its reasoning on each issue, and its overall conclusions. A key message is that there were insufficient responses to the consultation to demonstrate a demand for change. The consultation "received a very limited response of just over 20 representations and very few of these were from businesses (particularly unquoted companies) or their representative groups". This argument is a little harsh. Given the Government's success in creating a moral agenda against tax planning it is unlikely that many businesses will write in to HMRC to say "we set up our trust offshore to save CGT" or "it was only after we made the loan to our trust that we were advised there was a 25% tax charge" and, remember, these are highly technical issues. Also, there could be consultation fatigue. Since 2011 there has been a succession of important employee share schemes related consultations. It is entirely correct for HM Treasury and HMRC to state "The OTS’s recommendations have enabled the government to undertake the most significant package of reform to the tax rules for employee share schemes for many years". And, of course, for the employee ownership sector there have been all the Nuttall Review related consultations including on the new employee-ownership trusts tax exemptions.

Great progress has been made by this Government in revamping the UK's tax advantaged employee share schemes and in promoting, for the first time, an employee ownership agenda complete with tax exemptions. As to the tax issues the ESV would have solved, well, there is some hope. The Government has said it will continue to keep the individual issues raised by the discussion paper under review.

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