Employee Ownership exempt from Capital Gains Tax

George Osborne wants to see a brave new world of ‘owner-employee’ employment contracts for new employees who may be required to waive a range of employment rights such as unfair dismissal and redundancy for ‘owner-employee’ status. In return for giving up these employment rights, any gains on the shares will be exempt from capital gains tax.

Although the Government states that the new contract is ‘principally’ intended for fast growing small and medium sized companies, companies of any size will be able to use the contracts. Existing employees would have the option of joining such schemes.

Under the new owner-employee contracts, employees will be given between £2,000 and £50,000 worth of shares that are exempt from capital gains tax.

The Government will legislate later this year to enable companies to use the new owner-employee contracts from April 2013 and will consult on the details which will regulate the shareholding arrangements such as ‘good’ and ‘bad’ leaver provisions and how much the employer should pay for the shares in the event that the owner-employee leaves employment.

Ross Strowger, Head of Employment at Ashtons Legal commented: “Whilst there is plenty of detail to come, were the shares to have voting rights, it would be difficult to see how these provisions will be attractive to small and medium sized family owned, or owner managed private companies who often find such arrangements unwieldy and also want to keep 100% of ownership in the owner/family’s hands.  It is, however, likely to be attractive to large businesses whose shares are publicly traded as a fairly cheap way of disposing of employment protections.

‘Day one’ rights such as a protection against discrimination and whistleblowing would be unaffected. It also awaits to be seen whether or not the Government has just created a different class of legal right to be disputed when/if employment relations go sour with owner-employees.”