Employee sharesave question

JulietWhisky

Hello guys, I have a Sharesave scheme which is due to mature in August 2014. As it stands today the shares are worth 6 times the option price. I am young and plan to use the money to buy my first house. I am trying to establish what is the maximum amount I can get into my pocket before Capital Gains Tax. According to my research I will be able to do the following:

Sell shares to the value of (original investment + £11,000 [CGT allowance for 2014/15])

and also:

Transfer £11,880 to a Stocks & Shares ISA and then sell them.

Thus, Giving me a grand total of £22,880 + my original investment, tax free in my pockets. I can then wait until the next financial year to sell some more shares.
I would be grateful if you could confirm my understanding.

Lokolo

I am not sure if that is correct. There are 2 types of sharescheme, yours isn't the same as mine, but with mine, whilst they remain in the scheme they are tax free and therefore no capital gains would be due.

It is only once you have taken them out of the plan that they start acquiring "gains" for CGT (in your case, maturity which would be from August 2014 is when you would start calculating for gains from).

I would check with your scheme provider.

Browntoa

if its the scheme i think then at the end the option is exercised and they are transferred to easyshare

You can invest up to £11,520 for the tax year 2013/2014 in a Stocks and Shares ISA.

• If you are a higher rate tax payer you only have to pay the lower rate of tax on dividend income
• You are also shielded from Capital Gains Tax (CGT) and although the current CGT annual allowance is £10,900 and you might not be too worried about breaching it, if you’re going to be investing over several years, you may well find that at some point in the future you are very glad of that CGT exemption
• Also of benefit is that you do not have to note investments in an ISA on an annual tax return if you file one.

JulietWhisky

Browntoa wrote: »

if its the scheme i think then at the end the option is exercised and they are transferred to easyshare

You can invest up to £11,520 for the tax year 2013/2014 in a Stocks and Shares ISA.

• If you are a higher rate tax payer you only have to pay the lower rate of tax on dividend income
• You are also shielded from Capital Gains Tax (CGT) and although the current CGT annual allowance is £10,900 and you might not be too worried about breaching it, if you’re going to be investing over several years, you may well find that at some point in the future you are very glad of that CGT exemption
• Also of benefit is that you do not have to note investments in an ISA on an annual tax return if you file one.

Thanks Browntoa, although I am now more uncertain!

It is the scheme you are thinking of. At the end of the 5 year term (August 2014) I will have the choice to exercise my Sharesave option. Given today's share price I will have shares to the value of £60k plus. As above, I want to buy my first house, so want to try and work out what is the most amount of money I can get in August without being liable for CGT.

So over the 5 year term I would have invested £10,800. I think I can:

• Sell £21,800 worth of shares (£10,800 is my original investment + £11,000 CGT allowance for 2014/15)
• Transfer £11,880 to a S&S ISA and then sell them.

Giving me a grand total of £33,680 in the bank. I will then leave then keep the remaining shares and sell some more in the next financial year.

Struggling to find anybody who can advise and whether my understanding is correct.

Annisele

Does this factsheet help?

I'm assuming (possibly wrongly) that yours is an SAYE scheme. If that's the case:

The capital gains cost of your shares is usually what you pay for them
when you exercise your option.

If I've got the wrong scheme, please ignore me completely - that makes the rest of this gibberish.

If I'm right about the scheme, and if you paid £10,800 to get £60,000 worth of shares then sold the shares immediately, your capital gain would be £60k - £10,800 = £49,200. Bearing in mind the CGT allowance, you'd be paying tax on a gain of £38,200 at your highest marginal rate (and if you're not a higher rate taxpayer already, that'd probably push you into the band).

If you wanted to sell the maximum number of shares without paying any CGT, you'd want to make your gain on disposal exactly £11,000. So, take £11,000 and divide it by (price of 1 share in August - price you paid for one share), then sell that many shares.

As an example, if the August share price is 60p and you paid 10p for them, your gain on each share is 50p. £11,000 / 50p is 22,000, so you'd need to sell 22,000 shares to realise a capital gain of £11,000.

I'm ignoring disposal costs in this, so you could sell a few more - but I think the principle is right.

I don't think your calculation is exactly right, because your hypothetical £21,800 of shares only cost you (£21,800/£60,000) x £10,800 = £3,924 to obtain. So, [amount received on disposal] - [cost of acquiring] is £21,800 - £3,924, meaning a gain of £17,876, and you'd pay tax on [STRIKE]£7,876[/STRIKE] £6,786 of that gain. (Edited for dodgy arithmetic).

I hope that makes sense, and that I haven't made any fundamental errors! (Beyond ignoring transactions costs; I know about that error but I'm too lazy to account for it right now).

Vortigern

JulietWhisky wrote: »

So over the 5 year term I would have invested £10,800. I think I can:

• Sell £21,800 worth of shares (£10,800 is my original investment + £11,000 CGT allowance for 2014/15)
• Transfer £11,880 to a S&S ISA and then sell them.

Giving me a grand total of £33,680 in the bank. I will then leave then keep the remaining shares and sell some more in the next financial year.

Struggling to find anybody who can advise and whether my understanding is correct.

http://www.hmrc.gov.uk/working/bens-shares-tips/shareschemes.htm

I think your understanding is mostly correct. You have used the new 2014/15 ISA and CGT limits but Browntoa has used the 2013/14 limits. Annisele has given the correct method for working out your gain.

Lokolo refers to two types of share scheme. His scheme buys shares from gross pay and, as he says, no chargeable gain arises until the shares are taken out of the scheme. This does not apply to your ShareSave scheme.

Your scheme buys shares from net pay after a savings contract and would be liable for CGT if you sold them all immediately.

An additional tax dodge would be to transfer some shares to your spouse (if appropriate) to make use of his CGT allowance.

jmt

I presume that this is the BT sharesave scheme that will be transferred into Easyshare

Are you married - can you invest/transfer the same shares ISA allowance into your spouse name?

JulietWhisky

jmt wrote: »

I presume that this is the BT sharesave scheme that will be transferred into Easyshare

Are you married - can you invest/transfer the same shares ISA allowance into your spouse name?

You have guessed correctly, and no I am not married.

JulietWhisky

Annisele wrote: »

I'm assuming (possibly wrongly) that yours is an SAYE scheme. If that's the case:

If I've got the wrong scheme, please ignore me completely - that makes the rest of this gibberish.

If I'm right about the scheme, and if you paid £10,800 to get £60,000 worth of shares then sold the shares immediately, your capital gain would be £60k - £10,800 = £49,200. Bearing in mind the CGT allowance, you'd be paying tax on a gain of £38,200 at your highest marginal rate (and if you're not a higher rate taxpayer already, that'd probably push you into the band).

If you wanted to sell the maximum number of shares without paying any CGT, you'd want to make your gain on disposal exactly £11,000. So, take £11,000 and divide it by (price of 1 share in August - price you paid for one share), then sell that many shares.

As an example, if the August share price is 60p and you paid 10p for them, your gain on each share is 50p. £11,000 / 50p is 22,000, so you'd need to sell 22,000 shares to realise a capital gain of £11,000.

I'm ignoring disposal costs in this, so you could sell a few more - but I think the principle is right.

I don't think your calculation is exactly right, because your hypothetical £21,800 of shares only cost you (£21,800/£60,000) x £10,800 = £3,924 to obtain. So, [amount received on disposal] - [cost of acquiring] is £21,800 - £3,924, meaning a gain of £17,876, and you'd pay tax on £7,876 of that gain.

I hope that makes sense, and that I haven't made any fundamental errors! (Beyond ignoring transactions costs; I know about that error but I'm too lazy to account for it right now).

Thank You! It is indeed a SAYE scheme. I think you are pretty much spot on in this statement and the penny has just dropped as to how you calculate it.

I don't think your calculation is exactly right, because your hypothetical £21,800 of shares only cost you (£21,800/£60,000) x £10,800 = £3,924 to obtain. So, [amount received on disposal] - [cost of acquiring] is £21,800 - £3,924, meaning a gain of £17,876, and you'd pay tax on £7,876 of that gain.

So I am right in saying as well as the above I can ALSO transfer shares to a S&S isa, to obtain an additional £11k?

xylophone

http://moneytothemasses.com/how-to-avoid-paying-tax-on-your-save-as-you-earn-saye-shares

http://www.hmrc.gov.uk/working/bens-shares-tips/shareschemes.htm
Is this relevant to your case?

gadgetmind

JulietWhisky wrote: »

So over the 5 year term I would have invested £10,800. I think I can:

• Sell £21,800 worth of shares (£10,800 is my original investment + £11,000 CGT allowance for 2014/15)

No, that's not how you work it out. See post from Annisele.

• Transfer £11,880 to a S&S ISA and then sell them.

Yes, you can do that. The transfer must be within 90 days of exercise.

You'll get about £25k tax free this tax year and then about another £13k next tax year.

When I've done this, I've sent the share certificate to my ISA provider, asked them to transfer a full S&S ISA allowance of the shares into my ISA and leave the rest in my trading account. I then sell enough to make a full CGT allowance, take out the money, and then go to Oddbins.

I also have the additional wrinkle of then asking for some of the shares to be moved to my wife's trading account and she uses her CGT allowance.