Finance Bill to benefit share options savings schemes and charity funding

Provisions to enhance the attractiveness of share options and savings schemes and to increase donations to charities will be among the main features of the Finance Bill, which will be published by the Minister for Finance today.

The Bill, which will be the longest in recent years, will include detailed plans to give savers a 25 per cent return subject to certain conditions, will provide for the taxation of share options at 20 per cent once they are widely available in a company and allow for incentives for charity donations.

The savings scheme, first proposed by the Tanaiste, Ms Harney, is designed to get the levels of savings in the economy back up to pre-1997 levels of close to 10 per cent.

It is also designed to ease inflationary pressure in the economy by encouraging people to save rather than spend. The scheme would give a tax credit of up to 25 per cent on investments of up to £3,000 (€3,811) a year if held for five years as part of a contractual savings scheme.

For example, an investment of £800 in a year would be topped up to £1,000 by the Government before any interest or capital gains would be applied.

The plans are likely to apply to both deposit-based and equity investments. However, access to the plans will be ringfenced to inhibit people from simply taking funds form savings plans which are already in place.

The scheme could prove very expensive for the Government with some estimates running as high as a potential £1 billion liability over five years.

The Finance Bill will also provide for a radical overhaul of the taxation of share options schemes. There is likely to be a limit of around £200,000 at the time the options are granted. Employees will also have to hold the options for at least three years. But at the end of the period the gains will be taxed at the capital gains rate of 20 per cent rather than as income at present.

One stipulation will be that the share options will have to be widely available to all employees and not just to executives or other small numbers of people.

The Tanaiste said yesterday tax relief on share options would boost employment in the technology sector. Tax relief on share options was also an important measure as it would encourage wider ownership of companies in the Republic, Ms Harney said.

High technology companies have been lobbying to make share options subject to capital gains, which could reduce the tax on share options in most cases to 20 per cent from 42 per cent.

The Tanaiste's comments were welcomed yesterday by representatives of technology industries.

Ms Harney did not comment further on the detail of the measures or on the controversial decision to abolish the ceiling on PRSI contributions from employers.

But she said the level of PRSI was too complicated and needed to be "radically overhauled". This was likely to take place in the next Budget, she added. The overhaul is likely to mean abolishing the ceiling for employees' PRSI while cutting the rate and simplifying the structure.

This would follow on from the initial move in the last Budget to abolish the employer's PRSI ceiling.

IBEC and several technology firms have lobbied the Government to reverse the latter provision claiming the increases in PRSI represent an additional tax on employment.

They said it was poorly judged in the light of the difficult trading environment being experienced by many high-tech US multinationals.