Employee Share Schemes

Soldato
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I'm looking for some general advice if possible. Particularly, how the tax works.

Example: I contribute £2,000 into the scheme. My employer matches on a 1 for 2 basis therefore the match is £1,000. Assuming the share price stays the same, when I cash in then would I pay 40% on the £3,000 or the £1,000 employer match?

Does the share management company calculate and deduct the tax, or is that self assessment territory?

TIA
 
Soldato
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Regarding the tax, assuming it's Save As You Earn scheme?
This is a savings-related share scheme where you can buy shares with your savings for a fixed price.

You can save up to £500 a month under the scheme. At the end of your savings contract (3 or 5 years) you can use the savings to buy shares.

The tax advantages are:
  • the interest and any bonus at the end of the scheme is tax-free
  • you do not pay Income Tax or National Insurance on the difference between what you pay for the shares and what they’re worth
You might have to pay Capital Gains Tax if you sell the shares.

You’ll not pay Capital Gains Tax if you transfer the shares:

If you do not transfer your shares to a pension immediately when the scheme ends, you can still transfer them up to 90 days later. You may have to pay Capital Gains Tax if they go up in value between when you buy them and when you transfer them.

Source: https://www.gov.uk/tax-employee-share-schemes/save-as-you-earn-saye
 
Associate
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Sounds like a SAYE scheme as in BAYE you can only buy £1800 tax free (good if your 40% tax payer) on SAYE you can buy shares at end of scheme but only do so if share price has gone up (yes seems obvious but I've had colleagues who have brought when share price was lower than the price they got them at in SAYE and the opposite where they have taken there money back out when the share prices have increased)
With regards to match shares you have to keep them 5 years before they become tax free otherwise if you draw them out before you have to pay tax on them at either 20/40% depending on your tax bracket
 
Soldato
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It's described as "employee share plan" and on the registration form it asks whether it's employee share plan or save as you earn, so looks like it's not SAYE.

Edit: I've found some tax info documents on the portal, yes I'll be liable for tax on the matching shares and the dividends, plus potential capital gains when cashing out.

No thanks! :eek:
 
Last edited:
Soldato
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It's described as "employee share plan" and on the registration form it asks whether it's employee share plan or save as you earn, so looks like it's not SAYE.

Edit: I've found some tax info documents on the portal, yes I'll be liable for tax on the matching shares and the dividends, plus potential capital gains when cashing out.

No thanks! :eek:
But surely uour still gaining:confused:. If you pay tax on something that's free you're still 'up' on where you started surely?
 
Soldato
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If the value of the shares plummet then the tax eats into the buffer.
But then you wouldn't be paying as much tax as you wouldn't have made as much? Sorry I don't mean to sound dense here, I did have employee shares at my last workplace and they were fantastic (although I kept mine more than 5 years).
 
Soldato
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If the value of the shares plummet then the tax eats into the buffer.
We have a similar scheme at work and I encourage everyone I can to sign up for it. The amount comes off your wage before tax so even that benefit is worth it. You can’t lose money. Even if the share price is below the offer price (which is discounted on our plan by 20%) you can either accept the shares and keep them until the price rises again or simply ask for your payments back. Even on £25pm I made about £500 profit after three years. No bank account or ISA or even most investment funds wouldn’t get anywhere near that rate of return. An old boss signed up on a five year plan about a decade ago and profited by £15k.
 
Associate
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If you're buying these through your employer then it's usually deducted from your salary before anything else (ie, income tax and national insurance). Assuming that's the case (it always has been at any place I've worked) then it's well worth doing.

The matched shares normally need to be held for 3 years before you can actually withdraw them.
You're liable for tax and NI on matched shares (entirely) and any gain on the purchased shares if you sell them within 5 years of purchase.
After a share has been held for 5 years in such a scheme, you can withdraw without tax/NI implications (although they will accrue dividends if you keep them, so worth bearing in mind)
If you resign, you're forced to withdraw all shares from the scheme, losing any matched shares (that are younger than 3 years) and paying any gain/tax/NI applicable.
If you're made redundant then usually you'll get the whole pot without penalty.

Very much worth doing.
 
Associate
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We have a similar scheme at work and I encourage everyone I can to sign up for it. The amount comes off your wage before tax so even that benefit is worth it. You can’t lose money. Even if the share price is below the offer price (which is discounted on our plan by 20%) you can either accept the shares and keep them until the price rises again or simply ask for your payments back. Even on £25pm I made about £500 profit after three years. No bank account or ISA or even most investment funds wouldn’t get anywhere near that rate of return. An old boss signed up on a five year plan about a decade ago and profited by £15k.

You're talking about SAYE, which is different to employee share plans. But still worth doing. Also worth noting that under SAYE, you don't buy the shares pre-tax but there is usually a discount (as you say, 20%) plus you get the option to take the cash at the end if the shares have performed that badly so it's very unlikely you lose (if the company goes under you lose).
 
Soldato
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It's been a while since I did this but you definitely need to get some advice. Doesn't the scheme paperwork explain it all? I remember that sharesave's (post tax) with a discount are capital gains exempt if you hold them long enough. I have done this myself but not in the last 10 years so the rules may have changed.
 
Soldato
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I'm looking for some general advice if possible. Particularly, how the tax works.

Example: I contribute £2,000 into the scheme. My employer matches on a 1 for 2 basis therefore the match is £1,000. Assuming the share price stays the same, when I cash in then would I pay 40% on the £3,000 or the £1,000 employer match?

Does the share management company calculate and deduct the tax, or is that self assessment territory?

TIA
Shares are capital, not earnings. So you'd be taxed under CGT (Capital Gains Tax).

And you'll only pay any tax on it at all if you make gains, and then if those gains (and any other capital gains in the year) exceed you annual CGT allowance of £12,300.

I don't know exactly how these schemes work, so I don't know if your deemed purchase price will be the £2,000 or will include the employer contribution of £1,000. Either way, you only pay tax on the gain, and only if it exceeds you annual allowance.
 
Soldato
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Your employer contribution is huge! I assume you are locked in for a fixed period to get that bounty?

As discussed above, each scheme varies. It should be CGT on the delta between what you paid in and what you sold for, including employers contribution. You need to be earning over 12k in profit though to pay CGT if I understood it correctly.
 
Associate
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I do both at my workplace, BAYE and SAYE.

You're doing BAYE. Money will be taken out of the gross pay before tax/NI, so you are saving that. Then your money (plus the 50% the company are giving) is used to buy the shares. After 3 years, they become available to sell, but will go to your payroll so you pay tax/NI on them. If you sell after 5 years, then they're tax/NI free (or in my company this is how it works anyway.)

SAYE is when you have an option to buy shares after 3 years, at the option price which is usually the share price at scheme commencement (or thereabouts) with a 20% reduction. Can put max of £500 into SAYE schemes, and a max of £350 in any one years scheme. So could be say, yr 1-£200, yr 2-£150, yr3-£150, OR Yr 1-£350, yr2-£100, YR3-£0 left over. Then after the 3 years from a scheme start date, you have an option to buy the shares with that years scheme savings from over the previous 3 years at the option price, and if the share price isnt above the option price (meaning no profit from selling them) you can just take the money as if it were a savings account, so no risk of loss in SAVE.
 
Soldato
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Looking at my company shares with the match reward its showing 40% tax. How long do i have to hold onto them before they are tax free?
 
Soldato
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You're doing BAYE. Money will be taken out of the gross pay before tax/NI, so you are saving that

That's not the case with this scheme. Also, it isn't a 50% match gain it's 33% (I buy 2, they match with 1). I just don't think it's tax efficient enough for me to take the risk. It's not as simple as being free money because the value of what I pay to buy could be less when I sell and the match incentive might not buffer the loss due to the tax take.

It's not like the pension match where my pension is taken from my gross pay and the match is 100% - that really does buffer any potential losses.

If you choose to join the plan, you need to decide what percentage of
your gross salary you want to contribute – this can be between 1% and
10%. Contributions will be made over 12 months from your net (after
tax) salary, and deducted every pay period; this is known as the purchase
period
 
Caporegime
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That's not the case with this scheme. Also, it isn't a 50% match gain it's 33% (I buy 2, they match with 1). I just don't think it's tax efficient enough for me to take the risk. It's not as simple as being free money because the value of what I pay to buy could be less when I sell and the match incentive might not buffer the loss due to the tax take.

It literally is as simple as being free money - there is some added variance but that goes in both directions and you're only considering one. It is a 50% gain too... if you invest 10k and you get an extra 5k on top that is an additional 50% added to your investment. A loss of 33% can wipe out that gain, unless there is something drastically wrong with your company at the moment (and there might be, given the current climate) then I don't see the issue... and if that were the case then I guess this scheme is moot anyway as the bigger risk is to your job itself, ergo you perhaps should be looking to jump ship.
 
Associate
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That's not the case with this scheme. Also, it isn't a 50% match gain it's 33% (I buy 2, they match with 1). I just don't think it's tax efficient enough for me to take the risk. It's not as simple as being free money because the value of what I pay to buy could be less when I sell and the match incentive might not buffer the loss due to the tax take.

It's not like the pension match where my pension is taken from my gross pay and the match is 100% - that really does buffer any potential losses.

In your quote from your employee handbook I would read that as being you save for 12 months - then at the end of that 12 months they buy you the shares at the prevailing price (at the end) plus 1 free one for every 2 to you buy. I assume those shares are then yours to sell as you see fit so you could cash out there and then with no exposure to share price volatility.

I would not expect you to be buying shares as you go, rather a one off at the end. That is how it has worked for me in the past. And in that company they taxed you in the following pay packet for the tax liable on what they had bought you.

Once you have clarified all that I think you will find it is worth doing.
 
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