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CGT Freeze For UK Employee Ownership Schemes

by Robert Lee,, London

11 October 2012

UK Chancellor George Osborne has announced plans for a scheme under which tax-exempt shares will be made available to new employees in exchange for the forfeit of redundancy and unfair dismissal rights.

Osborne intends to introduce a new "employee-owner" type of contract, available to companies of any size, but principally intended for fast growing small- and medium-sized enterprises (SMEs). Under the contract, employees will be given between GBP2,000 (USD3,200) and GBP50,000 of shares. These shares will be exempt from capital gains tax (CGT). Employee-owners receiving full CGT relief on the shares awarded will still be eligible for existing employee share ownership schemes such as the Enterprise Management Incentive.

In exchange, employees will have to give up certain employment rights. These include their rights on unfair dismissal and redundancy, and the right to request flexible working and time off for training. Female employer-owners will also be required provide 16 weeks’ notice of a firm date of return from maternity leave, instead of the usual eight.

Both established companies and new start-ups can choose to offer only this new type of contract for new hires, while employee-owner status will be optional for existing employees. Companies recruiting employee-owners will have the option of inserting more generous employment conditions into the employment contract if they wish.

The government will consult on some details of the contract toward the end of October, and will introduce legislation later this year. The intention is to make the employee-owner contracts available from April, 2013.

TAGS: capital gains tax (CGT) | tax | investment | small business | business | training | law | share schemes | employees | equity investment | United Kingdom | small and medium-sized enterprises (SME) | legislation

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