Been invited to apply for SIP shares - 2 days to decide!

frivolous_fay

Received a letter from my company today 'inviting' me to buy shares through the SIP. No-one else in my office has received a letter... although it's possible they're in the post...?

From a shares newbie point of view... I could use a little advice from those more clever than me...

- The deadline is 1st July. Is this a cynical ploy to panic me into buying without thinking it through? I only received the letter today...
- There doesn't appear to be a special price on the shares - the current price is 97.5p (I looked online)
- After 5 years they become tax exempt... but I'm told I could put them in my (as yet non-existent) stocks and shares ISA. Would I be able to put them in later? Obviously I don't have time to open an ISA before the deadline.

Are there any possible pitfalls that I should look out for in the fine print? Obviously I know that the value of shares can go up or down. Motley Fool says that SIPs are 'usually' worth going for - is there any way of telling if mine is?

Any advice gratefully received....

jonnyb

The short term deadline makes me dubious.

I've got a scheme with GUS, where we have an option to buy shares, after saving for a 3 or 5 year period.
It's the option to buy which counts - you save the money and then decide to buy shares with it or not, so you cannot lose anything (except perhaps a better rate of interest).
I'm expecting to double my money at least after 3 years.

My scheme gives me an option to buy at a reduced rate - 20% below the market price at the time of joining the scheme.

Tax exempt ? I doubt it. They might mean it will not use up your capital gains allowance.

frivolous_fay

Ok, not tax exempt - on re-reading it says 'if the shares are retained by the trustee on your behalf for the full period of 5 years from the date of acquisition, you will not be subject to income tax or national insurance contributions on the value of the shares withdrawn from the trust.'

I'm a bit hazy about 'trustees' and 'trusts'.

Charlton_Taz

I'm in my company's SIP scheme. Basically they deduct a set amount of your salary each month (pre-tax) (e.g. I pay £125 a month so because I am a higher rate tax payer the true cost to me is only £75). They (well the trustees) then buy shares on your behalf and keep them in trust. If they stay in trust for 5 years they will be exempt from income tax, NI, and capital gains tax. In my scheme (though this might not be the same in your case) I can sell the shares if I want before the 5 years is up. If I do I then suffer income tax and NI. Though personally this is not worrying me as I didn't have to pay tax on this money when they deducted it from my salary in the first place. Also, many companies will give you some free shares if you but some through the SIP scheme. Does yours? If it does that is a good offer. I am very lucky as my company basically does a BOGOF offer on the shares!!

frivolous_fay

That sounds pretty similar to the deal they're offering me... except that as far as I can see there are no freebies, or discounts on the share price.

Essentially the only 'incentive' part is the potential (but not guaranteed) gain on the share value.

One of my managers was offered discounted shares last year when they were at a lower price already - from the sounds of it the SIP wasn't set up at that point and it was kind of a sweetener for long-standing employees. Sounds like it was a much better deal than the one that's on the table now.

If I miss the deadline, is it likely they will offer the deal again? It seems like a lousy time to offer shares for sale, from my point of view - a year ago they were 40p cheaper, 6 months ago, about 18p. They're currently only 15p cheaper than their highest recorded price.

frivolous_fay

Could anyone give me an idiot's guide to dividends?

frivolous_fay

Having thought about it some more, I can't see any real advantage in buying company shares over any other shares. Unless they come up with a better deal I'll skip it!

Stonk

frivolous_fay wrote:

Having thought about it some more, I can't see any real advantage in buying company shares over any other shares. Unless they come up with a better deal I'll skip it!

Indeed. I never buy shares in a company I work for. My reasoning is that you probably have enough exposure to your employer's fortunes already - i.e., your income is dependent upon them. If things went pear-shaped with your company, you stand to both lose your income, and suffer a loss on the shares. It's just another application of the "not too many eggs in one basket" principle.

Obviously, if a company grant me any form of incentive option for future purchase (like a SAYE scheme), then I'll take that.

multimillionaire

Being a Higher Rate taxpayer....

The SIP type scheme I am in basically permits me to purchase in the company I work for £1500 in value of shares taken from my salary before tax and NI is taken.....this resultantly reduces my tax and NI paid for the year.

In effect, it equates to having cost me in actual terms around just over £900.

I've done this for 2 years now.....so my 2 year spend has been around £1800 - todays present value of the holding equates to around £3200.

Plus I get the dividends reinvested as further shares saving on more tax and hence increasing my shareholding - its a giveaway which keeps on snowballing itself - Nice !

Sips are worth considering with the associated tax and NI savings alone - even is the share price goes down - you have a £600 margin of error in my case (remember: higher rate tax payer) for that year to take a hit as losses....plus gain dividends en route........makes sense to me ! !

Why pay tax(?)....when you can get shares at a discount (effective as tax and NI not being paid) and get dividends along the way - - Leans strongly towards a win-win scenario for me...

Watch out for the continuous drip type setups. Where if you paid a monthly amount, but must keep them for 3/5 years. The first month purchase will not be released the same time as the month 12 payment.....so in effect if you left the employment after five and a half years from the first payment of 12 monthly payments, then 6 of those remaining months would be liable for tax as they would not have been held for the 3/5 years etc....

Its best if possible to make larger block purchases early on in the financial year if possible with your scheme permitting this of course. That way, you can quit sooner (3/5 odd years later and thus not incur liabilities) and pick up dividends if offered too.

Some people in previous posts have been discussing share options - this is a different scheme entirely and does not usually have tax benefits.... Dont get these confused !

- Sips are good from a tax & NI efficient perspective (varies on your tax position)

- Share options are more of a (non risky) gamble to aquire shares at a discount over 3 or 5 years....the non risk part being you usually get the money back if you choose not to buy the options at the end of the scheme.....

frivolous_fay - I think your scheme is tax efficient and you have misunderstood it - therefore worth considering if you plan to stick around at the company. Really depends on your scheme details....more info needed from you really to give us an understanding of how it is setup....

Simply, if they take the money to buy shares before tax & NI is taken from your salary - then not paying the tax and NI becomes your effective discount!

eg: if normally earn £1500 a month before tax and NI is taken.....

....buy £500 of shares means for that month, you will only then pay tax and NI on the remaining £1000 portion - therefore reducing the tax and NI that you would normally have paid on £1500. The £500 you have now spent on shares is not taxed or NI'ed but you own £500 of shares now instead!

Hope that helps a little.....