Increases in Employer NIC Costs and Capital Gains Tax Announced as Part of UK Budget

On October 30, 2024, the UK Chancellor delivered the new Labour government’s first budget, which included tax increases that may impact employee share plans.
 
The most notable changes include the following:

• Employer national insurance contributions (NICs):
  
  • From April 6, 2025, the rate of Employer NICs will increase from 13.8% to 15%.
  • The threshold at which employers pay employer NICs will decrease. Employers will start paying employer NICs when employees earn above £5,000 (down from £9,100).
  • To offer some protection for small businesses, the government increased the Employment Allowance from £5,000 to £10,500 and expanded it to apply to all eligible employers. This means that eligible employers will only start paying employer NICs when their employer NICs bill rises above £10,500.

In light of the increased costs, if they are not doing so already, employers may wish to consider whether to pass some, or all, of the employer NICs to employees, which is permitted for stock options and other share-settled awards (such as share-settled RSUs/PSUs). Because the employee can deduct the transferred employer NICs for purposes of calculating their income tax liability for such awards, the employee effectively will pay less than 15%. That said, the transfer will of course increase the employee’s overall tax liability for the awards and is therefore not always welcome. 

Please see a survey we conducted a couple of years ago on the prevalence of transferring employer NICs to employees for share-based awards here.     

• Capital gains tax (CGT) rates:
  
  • From October 30, 2024, the main CGT rates rose from:
    • 10% to 18% (lower/basic rate); and
    • 20% to 24% (higher rate).
  • This comes on top of the recent decrease in annual CGT allowance, which currently stands at £3,000 per year. This means that when employees sell shares, including those acquired from employee share plans, they will need to pay CGT at an earlier point and now at a higher rate.

No increases were announced to individual income tax rates or employee NICs, and income tax thresholds will continue to be frozen until April 2028.

For more information on other changes announced as part of the UK budget, see our London office’s alert.

Interested in the pensions implications? Learn more about the pensions taxation reform here.

We would like to thank our London colleagues Jeremy Edwards, Gillian Parnell, and Will Clifton for their assistance with this update.