New UK Ownership Plan Proposed

The Labour Government in the United Kingdom has proposed new legislation to encourage employee ownership. It would replace the existing "Save as You Earn" plan, a highly tax-advantaged savings/stock purchase plan. The new plan would be based on a trust similar to a U.S. 401(k) plan. Employers could contribute up to £3,000 per year in shares per employee, partly on a discretionary basis and partly according to a formula. In addition, employees could put up to £1,500 per year on a pretax basis into the plan to buy shares, which the employer could match at up to two shares for each share purchased. Employer contributions are deductible. If employees hold on to the shares for at least three years after they are acquired, they can avoid tax altogether for the shares donated outright by employers or pay only limited tax on shares they purchased or received through an employee match.

An additional proposal allows very small companies to provide stock to employees on a very favorable basis, with much more discretion about who gets stock.

While employee ownership supporters are heartened by the government's interest in promoting broader ownership, they are reluctant to give up the very popular SAYE plans. The government's concern with these plans, however, has been that they do not provide an adequate structure to encourage the long-term holding of shares.