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Overview

If your employer offers you company shares, you could get tax advantages, like not paying Income Tax or National Insurance on their value.

Tax advantages only apply if the shares are offered through the following schemes:

  • Share Incentive Plans
  • Save As You Earn (SAYE)
  • Company Share Option Plans
  • Enterprise Management Incentives (EMIs)

You may be offered shares outside of these schemes. However these will not have the same tax advantages.

You can also get tax advantages if you’re an employee shareholder.

Share Incentive Plans (SIPs)

If you get shares through a Share Incentive Plan (SIP) and keep them in the plan for 5 years you will not pay Income Tax or National Insurance on their value.

You will not pay Capital Gains Tax on shares you sell if you keep them in the plan until you sell them.

If you take them out of the plan, keep them and then sell them later on, you might have to pay Capital Gains Tax if their value has increased.

There are 4 ways you can get shares under SIPs.

Free shares

Your employer can give you up to £3,600 of free shares in any tax year.

Partnership shares

You can buy shares out of your salary before tax deductions. There’s a limit to how much you can spend – either £1,800 or 10% of your income for the tax year, whichever is lower.

Matching shares

Your employer can give you up to 2 free matching shares for each partnership share you buy.

Dividend shares

You may be able to buy more shares with the dividends you get from free, partnership or matching shares (but only if your employer’s scheme allows it).

You will not pay Income Tax if you keep the dividend shares for at least 3 years.

You’ll have to pay Income Tax and National Insurance on any shares you take out of a SIP early.

Save As You Earn (SAYE)

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.

Company Share Option Plan

This gives you the option to buy up to £30,000 worth of shares at a fixed price.

You will not pay Income Tax or National Insurance contributions on the difference between what you pay for the shares and what they’re actually worth.

You may have to pay Capital Gains Tax if you sell the shares.

Enterprise Management Incentives (EMIs)

If you work for a company with assets of £30 million or less, it may be able to offer Enterprise Management Incentives (EMIs).

Your company can grant you share options up to the value of £250,000 in a 3-year period.

You will not have to pay Income Tax or National Insurance if you buy the shares for at least the market value they had when you were granted the option.

If you were given a discount on the market value, you’ll have to pay Income Tax or National Insurance on the difference between what you pay and what the shares were worth.

You may have to pay Capital Gains Tax if you sell the shares.

Excluded activities

Companies that work in ‘excluded activities’ are not allowed to offer EMIs. Excluded activities include:

  • banking
  • farming
  • property development
  • provision of legal services
  • ship building

Employee shareholder shares

To be an employee shareholder, you must own shares in your employer’s company that were worth at least £2,000 when you got them.

You will not usually pay Income Tax or National Insurance on the first £2,000 worth of employee shareholder shares you get before 1 December 2016.

You will not get tax relief if you or someone you’re connected with (like a business partner, spouse or family member) have 25% or more voting rights in the company.

When you become an employee shareholder your employer must pay for an independent expert to give advice about the terms and effects of the employee shareholder agreement. This advice not count as a taxable benefit.

Selling your shares

You might not pay Capital Gains Tax when you sell shares. It depends on when you signed your employee shareholder agreement.

Before 17 March 2016

You only pay Capital Gains Tax on shares that were worth over £50,000 when you got them.

From 17 March 2016

You only pay Capital Gains Tax on gains over £100,000 that you make during your lifetime. The ‘gain’ is the profit you make when you sell shares that have increased in value.

Transferring your shares to an ISA

You can transfer up to £20,000 of employee shares into a stocks and shares Individual Savings Account (ISA) if you have shares in a:

Your ISA provider must agree to the transfer.

You will not have to pay Capital Gains Tax on any gains you make on your shares if you move them to an ISA.

You must transfer your shares to your ISA within 90 days of when you took out your SIP or SAYE shares.

These shares will count towards your £20,000 ISA limit. They cannot be in addition to the limit.

Ask your employer or ISA provider for more information on how to transfer.

Madeleine


✨Shaking up the accounting profession ✨Business coach ✨Book Author ✨ Multi business-owning mom & wife.

I love to make business fun & have a passion for teaching my clients how to build a life they love while making an income they deserve!

Madeleine Salariu

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