Employee Share Schemes - Evolution Financial Planning

Share schemes for employees – how you can own shares in your employers company.

Yes it is possible to buy shares in your employer’s company. So, how does this work and is it worthwhile?

It is called Save As You Earn (SAYE). You buy shares and the price of them is set when you start to save, not when you actually buy them. The scheme normally lasts between 3 and 5 years at the end of which you earn a tax free bonus.

There are several advantages to doing it this way:

  • You can save anywhere between £5 and £500 a month into the scheme, so it’s not a scheme solely for high earners.
  • When the scheme ends, the money you have saved you can either buy shares in the company or just take the cash. If you decide to buy shares, the price will be

as when you started the scheme, not at the end. This allows you to see what the best option is, for example if the shares have fallen, you can take your cash without losing out.

  • Also you will not need to pay tax or national insurance on the difference between the price of the shares from purchase point to the end of the scheme.

If you decide to sell the shares, you may be liable for capital gains tax on any profit you have made. You can avoid this if you transfer the shares straight into an ISA.

Note that this will count towards your ISA limit.

Another way of buying shares is through a Shares Incentive Plan (SIP). This is different as your employer gives you shares when you start. They are allowed to give you up to £3600 worth of shares in any one tax year, increased from £3000 in 2014.

There are three points to note in this instance:

  1. Partnership shares – you can buy up to £1800 or 10% of your salary in shares per year (whichever is lower) before tax and national insurance. You need to stay in this scheme for 5 years and if you come out early, you will be charged the tax and national insurance.
  2. Employer matching – employers can give you two shares for every share that you buy. Some employers work on a 1:1 basis.
  3. Dividends – you can buy more shares from any dividends that you make from your shares. If you don’t want to pay capital gains tax, you need to leave the shares in your SIP until it matures. Also, it is worth noting that if you sell the shares once the SIP has matured, you may have to pay capital gains tax on the difference between the price of the shares when you bought them and the price when you come to sell them.

Company Share Option Plan (CSOP)

  • This scheme is normally only available to senior staff members as it allows you to buy up to £30,000 in shares at a fixed price.
  • These shares must be bought between 3 and 10 years after you are given the option to buy them and you may be liable for capital gains tax when you come to sell them.
  • If you have been offered these shares and then leave the business, you are still entitled to buy them if it has been more than three years since you were offered them and also if you are leaving for a ‘good’ reason, such as redundancy, illness, retirement. Leaving to go to another job is not counted.

Enterprise Management Incentives EMI

  • These are offered by smaller firms with less than £30 million in assets and are only available to certain types of firms. You can buy up to £250,000 worth of shares. This limit of £250,000 is set as the market value on the date that you are granted the option to buy shares.
  • Also you will not need to pay tax or national insurance on the difference between the price of the shares from purchase point to the end of the scheme.

Employee Shareholder Shares ESS

  • In this case you are either given the choice to buy shares or they may be available to you when you join the company.
  • The company many give you the incentive to buy shares. To be classed as an ESS you must have £2000 worth of shares, the first £2000 of which are free from tax and national insurance charges.
  • In this case, for up to £50,000 worth of shares, you will not be charged Capital Gains Tax when you come to sell them.

So it is worth checking whether your company have any such schemes and if you quality for them, it is worth investing if you can as it can be a good way of investing your money without too much risk.

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