Company share purchase schemes

ohit

Hi all,

I am about to start the world of real work (yay!?).

I would like something clarified regarding Share Purchase Schemes provided for employees of listed companies.

Essentially, shares can be purchased pre-tax. Every employee purchased share is matched by the employer for free. If the shares are kept in the trust for 5 years, and only sold after that, there is no national insurance or income tax to pay.

What happens if I sell the shares before 5 years?
Can we do a worked example...

So I buy a share for 1 pound and I now have 2 shares in total for that price (matched by employer).

If I sell in say one/two/three/four year's time at the same price (let's just say no change in share price), then what will I be taxed on, the full 2 pounds or 1 pound of 'profit' (as the extra share was given for free)?

What happens if the share price falls or rises?

Also, how will the National Insurance payments be calculated as I believe that is different to income tax calculations in terms of time period?

Any help to understand this would be appreciated.

Many thanks.

Pumpkinface_2

Are you talking about a Share Incentive Plan? If so firstly it has to be a government approved plan, being a listed company does not necessarily mean that it is an approved plan.

I am almost certain that you cannot take matching shares out of the plan in the first three years and in fact your employer might have extended this to five years. You need to check the plan rules for this. If you leave the company in this time you may well forfeit the matching shares too.

If you take the matching shares out of the plan between 3 and 5 years then you will pay tax and NIC on the lower of the market value of the shares at the time you acquired them or the time you took them out of the plan. Also if you take the shares that you paid for out of the plan early then you are also liable to Income tax and NIC on the market value of the shares, assuming that these were paid for out of gross pay in the first place.

In summary, it is not a good idea to take shares out of a plan within five years.

ajbell

You won't be eligible to join for a year.

Lokolo

ajbell wrote: »

You won't be eligible to join for a year.

According to my company plan you can. But if you leave withing 5 years you have to pay tax.

Pumpkinface_2

ajbell wrote: »

You won't be eligible to join for a year.

There is no legislation governing this, it must be a rule within your company.

ohit

OK thanks. I will ask for clarification when I join.