Tax
Incentive to receiving capital returns remains |
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| Tax | |
| Written by Catherine Murray | |
| Thursday, 25 March 2010 | |
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High earners and employees will continue looking to be rewarded and receive returns as capital after this year’s Budget. Yesterday’s announcements did nothing to close the record gap between tax rates of income tax and capital gains tax (CGT), according to the UK200Group of independent accountancy and solicitors firms. Indeed, the extension of CGT entrepreneurs’ relief has increased the attraction of CGT treatment. Mark Lewis, a partner in Leamington-based Wright Hassall’s company and commercial department and president of the lawyers section of the UK200Group, said that with income tax rates reaching a high of 50 per cent from next month and further rises in National Insurance (NI) due in 2011, there was an obvious advantage in structuring incentives and returns on investments so as to be subject to CGT at just 18% (and in some cases 10%). A key area where this can be done is through the use of employee share schemes. However, he also warned that any such scheme must be properly structured as the Government also made statements yesterday of increasing scrutiny of ‘income into capital schemes’, their aim being to continue cracking down on what they perceive to be unfair tax avoidance. Lewis said, "The disparity in the rates of income tax and CGT remains, which means that structuring investments and incentives to produce capital returns is still significantly advantageous." "Properly-structured employee share incentives can provide significantly greater returns to employees and also reduce the tax costs to employers of rewarding employees; indeed, the increase in entrepreneurs' relief, from £1million to £2million, means that individuals could pay up to £80,000 less in CGT on the disposal of qualifying assets, for instance on employer company shares," added Lewis. “In addition to these points there were a whole series of broad anti-avoidance statements made in the Budget," said Lewis. "Some of these focus on employee incentive arrangements, including what many practitioners consider to be proper commercial share plans and other reward mechanisms aimed at motivating employees to grow the value in their businesses," he added. Lewis explained that one of the areas that remains high on HMRC's agenda is the use of employee benefit trusts (EBTs) for the purposes of remunerating employees in a tax efficient manner. "There are a range of variants upon EBT structures but HMRC are keen to clamp down on what they perceive to be tax avoidance through the use of EBTs," he said He concluded, "Many practitioners expected that the Budget would announce much more enabling legislation that would be effective from Budget day. In many of the announcements issued, the detail is omitted and consultation and legislation is due for later in the year or with effect from 6 April 2011." |
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