Advice on Share Incentive Plan (LBG)

5t3ve

Hi All!

I've recently been offered membership in the 2013 Lloyds Banking Group Sharesave/Sharematch scheme. I'm looking for some advice. I've already decided to max out the Sharesave scheme, the option price is 40.62p and I'm going to pay £250 a month for 3 years and hopefully make a tidy sum (agree?). What I'm looking for advice on is the Sharematch scheme they also offer..

- Up to £30 per month, Lloyds will match my contribution.
- The money is taken before Tax/NI deductions, so there's an immediate tax saving!
- If I sell the shares within 5 years, I have to pay Tax and NI on the value of the holding. After 5 years, the holding is Tax/NI free.

What I'm confused about is:

1. Do I have to log in each month and buy shares at their current market rate? (therefore need to do so during market trading hours etc).
2. Would there be any stamp duty/commission costs?
3. Will I be able to set a buy limit and let it do it's thing?
4. If I decide after 5 years that I want to sell, can I only sell the shares I bought in the first month tax free, because the others haven't been held in the account for 5 years?!

Interested to hear from any other LBG members to hear your views!! Thanks in Advance.

opinions4u

Mrs o4u tells me:

1. No. It's deducted from pay and done for you automatically. You have no say in the price paid, but it's a genuine market price.
2. Not sure, but she thinks not.
3. You can cease, reduce or increase your contribution at any time. You can't determine when the shares are bought or at what price though.
4. Correct.

Perelandra

Some more points which might be of interest:

1) The £30 worth of shares that are given to you each month are treated slightly differently. If you leave the company, or sell the shares you paid for, before you've held the matching shares for 3 years then you'll (probably) forfeit the free ones.

2) Dividends will be paid on all the shares in the scheme (the ones you buy, plus the ones you were given). You can either tax them as cash (in which case you'll pay tax if you're a higher rate taxpayer), or take the dividends as additional shares. These shares will be tax-free as long as you hold them for five years. This is quite important, since some people feel that Sharematch isn't work going in for, unless you are going to be working for 3-5 years or more. This isn't true- you're still getting dividends (including the employer matching part).

3) Under some circumstances- e.g. redundancy- you'll be able to take all the shares tax-free. This can therefore be a god hedge against redundancy.

4) I think you'll be able to buy £125 worth of shares each month, but only £30 of free ones (so £125 income tax-free, if you hold them for long enough).

For your other questions:

1) No. It will be done for you.
2) No.
3) No. You will be able to move in an out of the scheme, but not immediately.
4) Yes.

5t3ve

Thanks both of your for your thorough replies! I have another question if you don't mind..

5. What's the best way to run a Sharematch account? The Sharesave deal is easy to interpret as it's a fixed 3 year goal. The Sharematch is fogging my mind slightly.. Clearly I'm going to want the most out of it as possible - so does this mean contributing for 5 years, and then letting the accumulated shares mature for another 5 years so I can withdraw them tax free??

6. Is the share price averaged out month by month so I know what my average 'price' is? Or will I hold loads of different shares at different prices?

To be honest, I don't want to contribute too much to this one as I'm maxing out the other - but if the small pain of £30 a month is worthwhile, I'll definitely take part!

Perelandra

They're good schemes, although if your shareprice does tank you can lose out in Sharematch (in Sharesave you'll be safe).

I would just continue to pay in to the scheme. If you leave it "early", you'll:

a) need to pay tax on the shares you've bought (so you're net no better/worse off than you would have been if you hadn't continued paying)

b) forfeit the free shares you've been given (so again you're no better/worse off than you would have been)

But:

Am I right in thinking that LBG aren't payng dividends at the moment? If so, then this won't help so much, but when they start doing so again:

c) You'll be paid dividends on the WHOLE of the value of the scheme- including the free shares. So effectively doubling the dividend yield, even if you do leave early.

Some of my own colleagues have been working for my employer for over 5 years now, and are kicking themselves for not joining when they started.


The real benefits of Sharematch start after you've been paying in for 3 years (that's when you get to keep the free shares). So you *may* want to stop paying in when you reach the point where you will be resigning (of your own will) from your employment in three years time... of course, things may well change in the three years, hence my comments above.

5t3ve

I see. So in theory, to get out the maximum possible from the Sharematch (ignoring the fact I'm only putting in £30), I'll need to:

- Buy for 3 years, at £30 with £30 match by LBG.
- After the 3 years is up, stop paying (optional), and hold onto these shares for a further 3 years.
- At this point, I'll be able to sell both partnership/matched and dividend shares without paying tax (All shares).
- in theory, I'll have doubled my share holding thanks to LBG's contribution, and these will all be bought 'pre tax/ni'.

All sounds too good to be true!! I guess my only other question is - does the 3 year counter start on the dividend share from the time the dividend is awarded? or is it from when I purchased the share the dividend is being awarded against?

Perelandra

They're very good schemes- if you're going to be with the company for 5 years, the return you get from these is much higher than the Sharesave schemes, although they do carry risk as share prices can fall. One of the few situations where "too good to be true" doesn't really apply, as these schemes give the best features of both ISAs and Pensions (tax-free income on both the earned portion, and on the dividends and employer matching, whilst remaining outside of a pension fund so usable before you reach 65). So for me they're a no-brainer.

In terms of what you say below on timings, that's nearly right:


You need to separate the three different types of share into those you buy, those you are given, and the dividend shares (assuming your employer pays dividends, and assuming you take these as shares- you can take them as cash if you want, in which case you pay tax on them if you're a higher rate taxpayer. If you're lower rate, you might as well take the shares).

If you pay into the scheme starting on 1st Jan 2013, and pay into it for a year and then stop:

From the 1st Jan 2016, the shares you were given will start becoming available- they're yours to keep. Each month, they become available at the rate that you were given them at, so in Jan 2016 you get £30 matching shares available (plus/minus any change in share price over that time). These shares are taxable at this point. By the 1st Jan 2017, the whole £360 that you were given in 2013 becomes available.

From 1st Jan 2018, the shares you bought, and the shares you were given, become available tax-free. Again the shares become "available" tax-free on a monthly basis, so you need to have held individual shares for 5 years for each "slice" to become available without tax.

During 2013 you will receive dividend shares (same assumptions as above). Let's say you get given these in November 2013, for shares bought between Jan 1st and October 2013. These shares won't be available tax-free until you've had them for 5 years (so the Nov 13 shares in Nov 18). If you sell them before Nov 18, you will pay tax on them.

In November 2014, you'd also receive dividend shares, for shares bought between 1st Jan 2013 and October 2014. Even though some of these shares were bought at the start of this year, this tranche of dividend shares wouldn't be available tax-free until Nov 2019 (5 years afterwards).


NB: I don't know when the dividend shares would actually be received for you, that's just a random month for illustration above., and assumes your employer is actually paying dividends!

5t3ve

Perelandra - thanks very much for your help.. You've answered my questions better than i could have asked!

Best of luck with your investments!

Steve

Perelandra

You are welcome.

I just strolled in on this thread by accident, as I'm not (and have never been) an employee of LBG, however the booklet I found on your scheme is extremely similar to the one my own employer operates so it was easy enough... ! :T