Share plans to leave Treasury £300m poorer

The City bonus pool is expected to top £7.4 billion this year despite the
credit crunch – but a giant payout in tax-efficient restricted share options
will mean the Chancellor will take £300 million less in income tax.

Banks are paying up to 50% of bonuses in restricted stock and share options –
twice the proportion paid last year, according to Ernst & Young.

Employees can play a discounted rate of tax on restricted stock if they pay
upfront for the shares. Graham Farquar of Ernst & Young told
he expected most would prefer to pay less now, hoping that with bank
stocks trading at long-time lows they would make tax-efficient gains as the
restrictions over the stock awards come off.

HM Revenue & Customs may also have hoped it would gain tax from thousands
of bankers exercising share options granted in bonus payouts two or three years
ago. But most have deferred those options as bank shares have fallen.

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