The tax changes announced in the emergency budget are likely to increase the demand for corporate ISA amongst all employees.
Workplace ISA is being considered by many employers keen to offer a savings
alternative to those higher earners affected by the restrictions to pension tax relief.
Paul Bloomfield, Head of Tax comments “Whilst the new government intends to simplify
the restrictions, proposing a reduction in the annual allowance for pension contributions, the
eventual limit of between £30,000 and £45,000 may still restrict some senior employees many of whom
have become used to contributing a proportion of their variable pay to a pension”.
The corporate ISA provides choice and flexibility required. Linked to payroll, employees may
contribute up to £850 per month from their net pay or make one off contributions. In effect the
addition of corporate ISA offers the employee a combined savings limit made up of both pension and
ISA.
However corporate ISA has a far wider application in the
workplace. It has long acted as a useful mechanism for mitigating capital gains
tax following the exercise of a SAYE share option scheme. In recent times its benefit has been
somewhat diminished; the combination of a relatively low capital gains tax rate and the fact that
many schemes have not been ‘in the money’ during the economic downturn have reduced the need for
corporate ISA.
There are signs that capital gains are returning and this will need to be assessed. The
increased capital gains tax rate of 28 per cent is likely to be a consideration for a significant
minority of employees and not just higher rate taxpayers given the requirement to add capital gains
to income when assessing the charge to tax. Individuals who would otherwise be basic rate taxpayers
may suffer capital gains tax at 28 per cent. The corporate ISA delivers the solution but only when
it enables in specie transfers of shares from the share scheme administrator to the ISA provider.
Jonathan Watts – Lay, Director of
WEALTH at work comments “Existing shareholdings can also be sheltered within the
ISA wrapper. Bed and ISA is the mechanism by which existing shares are sold and reacquired within
the ISA wrapper protecting any future capital growth from tax. Higher earners may also benefit by
avoiding the additional tax that would otherwise be payable on dividends.”
The introduction of corporate ISA provides all employees with a valuable addition to their
savings choices.
Please see the
'Workplace
ISA is now an essential workplace offering' PDF attached.
