Currently under EMI, companies can grant up to 100,000 worth of share options to each of 15 key employees, effectively limiting the total value to 1.5 million per company. The options are normally free of Income Tax and National Insurance charges on grant and on exercise. When the shares are sold, capital gains tax taper relief normally starts from the date the options were granted. The consultation period for the changes announced today ran from 8 November to 13 December 2000. Taper relief applies to the capital gains of individuals, trusts and the personal representatives of deceased persons, but not to the capital gains of companies.
Different tapers apply to business assets and non-business assets.
The taper reduces the effective CGT rates for a higher rate CGT payer from 40 per cent to 10 per cent for business assets and from 40 per cent to 24 per cent for non-business assets. The Finance Act 2000 broadened the range of assets that qualify as business assets with effect from 6 April 2000. Most businesses are treated as trading, but investment companies and property investment companies are not. Companies that are mainly trading, but that have more than an insubstantial amount of non-trading activities are also not treated as trading. Further information on the changes to CGT taper relief is available in a separate Inland Revenue Budget Note, REV BN 4, 'Capital Gains Tax Business Assets Taper Relief'.