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‘Shares for rights’ criticised for helping cut executive tax bills

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The government’s ‘shares for rights’ scheme, which allows staff to give up their employment rights in exchange for equity stakes and was introduced this month with the aim of boosting business start-ups, has been reported in the Financial Times as ‘helping to cut executive tax bills in the private equity industry’, after managers of Whitworths, a dried fruit and nuts supplier, were offered tax-free shares in the company in one of the first uses of the chancellor’s scheme.

Whitworths was sold last week for £90m by one private equity house, European Capital, to another, Equistone. As part of the agreement, eight members of the senior management team are each being offered equity stakes under the ‘shares for rights’ scheme worth up to £50,000 by the new owners – which would avoid capital gains tax if sold at a profit.

Chuka Umunna, the shadow business secretary, said: ‘While the scheme has been shunned by business, it appears that the concerns raised by the Institute for Fiscal Studies [where the IFS warned that introducing the scheme would “foster a whole new avoidance industry”] and others on the scheme being used for tax avoidance are being borne out now that it has been introduced.’