Sharesave Scheme and Tax

The_Realist

Hi All,

I will have paid £9k into a sharesave and including the bonus it equals £9250.

The shares have done well and in 15 months I might be able to take out circa £37k. Can someone please advise on CGT?

My understanding is:

£9250 back from the investment
£10600 CGT free gain
£10680 transfer directly into a share ISA?? (how exactly does this work?)
Remainder: £37000 - £9250 - £10600 - £10680 will be liable for tax at 18%?

Any advice/correction would be much appreciated.

Thanks
John

opinions4u

You might be best posting on the Cutting Tax part of the forum.

Don't forget you can transfer part of the holding to somebody you are married too / have a civil partnership with and use their allowance.

Additionally, you could hold part of the investment until the next tax year - and use your allowance all over again.

CGT is all about when you realise the gain (turn the shares in to cash). So it's avoidable if you don't take it all in one go.

TheMatrix_2

I think Capital Gains only comes into play once you sell the shares, if that's the case may be better to keep hold of some and then sell them in the next tax year or move them into the isa too.

gadgetmind

The_Realist wrote: »

£9250 back from the investment
£10600 CGT free gain
£10680 transfer directly into a share ISA?? (how exactly does this work?)
Remainder: £37000 - £9250 - £10600 - £10680 will be liable for tax at 18%?

You seem to have a good handle on it, and well done on the £10680 direct into ISA. Did your employer tell you about this? It's a little known wrinkle that I have used a few times.

Here is how it works, or at least, how I work it.
1) Take share certificate.
2) Ask company for a letter saying they are approved share options.
3) Send cert and letter to your ISA provider, but don't hang around as the direct to ISA only has a 90 day window. I use Hargreaves Lansdown. Tell them to place a full ISA allowance of shares into your ISA account (include application form if you don't have one) and tell them to place the remainder into your share account (ditto regards forms)
4) Once all the shares are in the relevant accounts, decide whether to sell and diversify or hold. I tend to sell. Sale in the ISA is free from CGT.
5) Then you need to decide what to do with the others. As you have spotted, you can sell £10600 this tax year, and probably more next year, so you can always sell more next April 6th.
6) If you do exceed your CGT allowance, then you need to "stack" your CGT on top of your income (and don't forget bank interest and dividends) and see what tax bracket the gain is in. Anything in the basic rate band will be taxed at 18% and anything above this, at 28%.
7) If you have a salary sacrifice system in place, consider upping it significantly as reducing your income will give you more gain at 18%.
8) Get married. You can then send your ISA/share company a letter "irrevocably gifting" the shares to your spouse and he/she will also get an CGT allowance.

BTW, based on your numbers, I think I might know which company you work for. Maybe. 55.6p SAYE options?

gadgetmind

TheMatrix wrote: »

I think Capital Gains only comes into play once you sell the shares, if that's the case may be better to keep hold of some and then sell them in the next tax year or move them into the isa too.

Yes, you can "double dip" both the CGT and the "direct to ISA".

As the ISA xfer needs to be done within 90 days of exercise, and SAYE can normally only be left dormant for six months, the OP will need to check the SAYE vesting date. I'm guessing it's November 2011, so it should be possible. It might be best to speak to someone at an ISA company to check the best way.

My guess is -
1) Leave the SAYE dormant until <90 days before April 5th 2012.
2) Take certificates as per my other message.
3) Send certs plus letters off to ISA provider and tell them exactly what to move where and when. The shares normally sit in the share account and then move over to the ISA on the right dates.

Again, I have used Hargreaves Lansdown for this and they have been *very* efficient.

[edit]

Silly me. OP said "15 months" so that's Sept 2012. If the SAYE is then dormant for 6 months, that's Feb 2013, which is within 90 days of April 2013. This means he/she can "double dip" both CGT and "ISA direct". Of course, DYOR, and all that! Exact dates are pretty important.

chris_m

gadgetmind wrote: »

You seem to have a good handle on it, and well done on the £10680 direct into ISA. Did your employer tell you about this? It's a little known wrinkle that I have used a few times.

Here is how it works, or at least, how I work it.
1) Take share certificate.
2) Ask company for a letter saying they are approved share options.
3) Send cert and letter to your ISA provider, but don't hang around as the direct to ISA only has a 90 day window. I use Hargreaves Lansdown. Tell them to place a full ISA allowance of shares into your ISA account (include application form if you don't have one) and tell them to place the remainder into your share account (ditto regards forms)
4) Once all the shares are in the relevant accounts, decide whether to sell and diversify or hold. I tend to sell. Sale in the ISA is free from CGT.
5) Then you need to decide what to do with the others. As you have spotted, you can sell £10600 this tax year, and probably more next year, so you can always sell more next April 6th.

Many thanks for posting this - I will be (should be if the SP holds) in a similar position when I have a Sharesave mature next year and, possibly, even better in three years time when a longer one with greater contributions and an even more favourable option price also matures.

I'd heard about putting them into an ISA but couldn't work out quite how it could be done without having to do a "bed & ISA" type transaction - which would, of course, incur CGT if it exceeded the allowance. Didn't know that they were a special case and that's how it works.

gadgetmind

chris_m wrote: »

I'd heard about putting them into an ISA but couldn't work out quite how it could be done without having to do a "bed & ISA" type transaction - which would, of course, incur CGT if it exceeded the allowance. Didn't know that they were a special case and that's how it works.

You need to make it clear that this needs to be a transfer from certificates or nominee account to ISA without a disposal.

If you PM me, I'll send you the simple wording that I used.

BTW, for those shares you can't move into an ISA directly, Hargreaves Lansdown let you do a "Bed and ISA" without dealing fees. OK, this just saves another £10-£15, but I'm a Yorkshire man. :-)

gadgetmind

chris_m wrote: »

Didn't know that they were a special case and that's how it works.

Yes, a special case, and the only way I know of to get shares into an ISA without a disposal.

With HL, the shares you send in as certificates sit in your Vantage Fund and Share account for a while, and then "beam across" to your Vantage ISA account as a "Product Transfer"

I then gift some to my wife, flog those in my ISA, flog a "CGT worth" in my fund account, do a "Bed and ISA" to her ISA and flog those, and then flog a "CGT worth" in her fund account.

We then retire to a local restaurant and celebrate a good day's work. :-)

Next tax year, rinse and repeat.

chris_m

gadgetmind wrote: »

I then gift some to my wife, flog those in my ISA, flog a "CGT worth" in my fund account, do a "Bed and ISA" to her ISA and flog those, and then flog a "CGT worth" in her fund account.
We then retire to a local restaurant and celebrate a good day's work. :-)
.

I like it - I have three SS schemes running, so I've just knocked up a quick spreadsheet to show me how much I can ISA on maturity, how much I can flog outside the ISA in the maturity year and how much has to be held over to the following year(s) to avoid hitting the CGT allowance. The biggie that I need to watch is a 5 year one maturing in 2014 - 61p option price, current SP 198p and £135/month going in, lovely jubbly

Unless the shares go even more ballistic, it all ties in nicely with my retirement plans with no CGT to pay and still having all the cash available for when I want to quit work and relocate.

gadgetmind

The_Realist wrote: »

£9250 back from the investment
£10600 CGT free gain
£10680 transfer directly into a share ISA?? (how exactly does this work?)
Remainder: £37000 - £9250 - £10600 - £10680 will be liable for tax at 18%?

Oops, I should have corrected this because you're mixing value and gain.

The £10680 (or whatever the ISA allowance is at the time as both this and the CGT allowance are going up by roughly CPI every year) is the *value* of shares that can move to an ISA, not the gain.

I've tried doing spreadsheets that work with value and gain, but have always ended up working in numbers of shares. Each share has an option price (O), a current value (V), which is the company share price on the day of movement/disposal and a gain (G), which is V minus O.

You then have rows in the spreadsheet for each thing you're doing with the shares that works out how many can move into an ISA (£10680/V) or how many can be sold without CGT (£10600/G). The number of shares remaining diminishes as you go down.

As the exact number of shares that will move into an ISA is impossible to predict in advance, you need to wait for these events happen, and then replace your formula for the number of shares with the actual number and everything below adjusts so you can see where you stand.

Working out tax if you have a mix of earned income, interest income and dividend income is complex. You stack these three (in that order) remove any personal allowances, and this shows whether you're in the basic rate band or not. Ignoring the fancy new top rates, income is 20%/40% depending on whether you're basic or higher, and dividend tax is 10% or 32.5% (but the 10% has already been deducted).

You then sit your capital gains (after allowance) on top and see whether you need to pay at 18% or 28%. It's *much* easier to not make any gains above your allowance, but if you do, you can now report this online, and pay the tax the same way.

Note that you don't need to notify HMG if your gains are with allowances UNLESS the disposal proceeds (value) are more than £42400 in any tax year. (Again, this number goes up every year.)

BTW, I am not an accountant, or a tax adviser, or an IFA, so the above might be wrong. However, my accountant regularly sanity checks my plans (and charges me for doing so!) and 95% of the time just nods.

gadgetmind

chris_m wrote: »

The biggie that I need to watch is a 5 year one maturing in 2014 - 61p option price, current SP 198p and £135/month going in, lovely jubbly

Sweet.

I have some with a slightly lower option price and a current share price of around a fiver. :-) Wish I had more!