Company Share Buy Scheme

Newbie2saving

Sorry I know this has been asked before, but thought I would ask your opinions on my specific scheme. It is a Buy 5 get 1 free (from the company), all monies taken out on a monthly basis from payroll, before tax and NIC. I am a basic tax rate payer. I have the spare cash to be able to enter the scheme. It is a min 3 yr tie in, ideally 5 to avoid any charges. The company pay all buying fees etc. It is FTSE 100 company.

Thank you for any advice.

MoneySaverLog

Well I'm in a similar scheme, but don't get the free share. Just comes out of my gross pay, so don't pay any tax or ni on my investment of £125 a month.

Sounds like a good scheme to me. Also doing a sharesave which comes out net pay at £250 a month but getting shares at a bargain price, which hopefully will end up going up over the 5 years. But if it does not I can still get my money back!!!

Lokolo

If the shares stay the same price, then you effectively have gained 20%+ as you can sell the shares without tax (income tax) imposed on the amount.

You are also getting 20% free on top of that from the company.

Example: Say each share is £20 and you put £100 a month in.

Option 1 - Don't bother and keep the money. You will get approximately £75 after Income Tax and NI (I have assumed the OP is earning more than tax allowances, earning £1k a month).
Option 2 - Buy the shares (5x£20). After 5 years (if share price stays the same). You can sell your 5 shares for £100. On top of that you will have another share worth £20 free from the company. So effectively you now have £120.

£75 vs. £120....

But obviously this is assuming the share price stays the same. If you have little faith in the company you work for, then personally I would take the £75, and save it in case you lose your job....

gadgetmind

Pretty much all of these schemes are well into "bite their hands off" territory IMO.

Newbie2saving

Thank you MoneySaverLog, Lokolo & gadgetmind for your responses.

I think you have confirmed my thoughts, go for it! I now just need to work out exactly how much I can spare. I can't see the share price totally tumbling, but I have tracked the past 4yrs worth of data and there are fluctuations, but within my risk tolerance. I am aware this is no indication of future performance.

I will always have a sum of money for rainy days which I can get to if I am ever out of a job, unlikely with the type of company I work for.

Will get the brochure tomorrow. Thanks again.

opinions4u

The main benefits:

Tax relief and national insurance relief.
20% of additional shares.


The main disadvantages:

Loss of tax benefits if you sell within 5 years.
Inflexibility within the first 3 years.
Risk of having all your shares exposure in one company - financial difficulties could cost you your job and this chunk of your savings.
Inflexibility with the disposal of shares - it's not a 5 year plan it's a 5 year rolling plan (so a new 5 year term starts each month).


I'd say do it, but understand all the downsides.

MoneySaverLog

opinions4u wrote: »

Risk of having all your shares exposure in one company.

Also I would add to this that if the company were to go under, you've lost your job and your shares.

Edit: Whoops I see you've edited your post :-)

Newbie2saving

opinions4u wrote: »

The main benefits:

Tax relief and national insurance relief.
20% of additional shares.


The main disadvantages:

Loss of tax benefits if you sell within 5 years.
Inflexibility within the first 3 years.
Risk of having all your shares exposure in one company.
Inflexibility with the disposal of shares - it's not a 5 year plan it's a 5 year rolling plan (so a new 5 year term starts each month).


I'd say do it, but understand all the downsides.

I am hoping I wouldn't need to sell, planning on this being a long term investing strategy. I haven't got many other shares, ones which I do hold are in an ISA. I totally agree that exposure to one company is a risk, but yet there are gains to be had by going down this share save route, which I don't want to miss & it may lead me onto more research in investing in shares in other companies as I am mainly a OEICs & unit trust gal. I need to understand the disposal part in more detail, thanks for raising that - will check out the finer detail tomorrow.

Really appreciate your input.

opinions4u

Newbie2saving wrote: »

I am hoping I wouldn't need to sell, planning on this being a long term investing strategy. I haven't got many other shares, ones which I do hold are in an ISA. I totally agree that exposure to one company is a risk, but yet there are gains to be had by going down this share save route, which I don't want to miss & it may lead me onto more research in investing in shares in other companies as I am mainly a OEICs & unit trust gal. I need to understand the disposal part in more detail, thanks for raising that - will check out the finer detail tomorrow.

Really appreciate your input.

I worked for HBOS and invested all my evil bonuses in to company shares. I maxed out SAYE schemes. In the good years I did very well out of it.

But the final hit after they collapsed currently stands at a 98.5% loss in value - somewhere over the £40,000 mark.

At some point in the future look at selling and diversifying (in a way that doesn't hammer you for Captial Gains Tax).

Newbie2saving

opinions4u wrote: »

Risk of having all your shares exposure in one company - financial difficulties could cost you your job and this chunk of your savings.

I take it this is referring to the companies financial difficulty, ie. if they went under so would my job and shares?

MoneySaverLog

Usually there are 2 different types of schemes your SIP, which I think you're talking about with rolling 5 year dates every month for taking money tax free and the Sharesave, which is better in that you know how many shares you'll get at the end of 3 or 5 years, what price you paid for them - The Option Price, and you have a choice whether to exercise the option if the future price is above the option price which hopefully it is. But if it's not then you get your savings back.

Personally I like the sharesave better, but only draw back is this one comes out of NET pay rather than the other one coming out of gross.