3 or 5 year save share?

Harveys_2

In a couple of weeks time I will be invited to do a save share. Possible amount to save will be 475 a month. What are your thoughts as whether to do a 3 or 5 or a combination of the two?

Thank you...

jm2926

When I looked into this the general wisdom was that 5 years provides the best return, assuming the shares go up. It does also depend how long you want tied in for and your personal circumstances.

I will see if I can find my previous research sources.

Are you sure on the monthly amount? I thought the max was way lower than that, unless it's increased since I took mine out.

PeacefulWaters

I'd go three years and then recycle the proceeds into another three year one at the end (assuming it's offered).

I believe the new limit is £500 a month.

redbuzzard

How long do you confidently expect to remain with the company?

I always did three year ones as I was never sure how long I would be working at the same firm. I always saved as much as I was allowed, and on a couple of occasions when the shares had gone down I actually cancelled plans part way through to allow me to start a new one.

Perelandra

The 5-year scheme will probably give a better return, but carries the risk over leaving the company that has already been highlighted above, but also carries risk of triggering a capital gains tax at the end- if (and you are not forced to do this) you sell all the shares in one go.

For example:

Save £500 a month for 5 years, = £30,000
Approximate value of shares, bought at (say) 20% discount, with no growth over the five years: £37,500
Growth rate needed to trigger CGT, if all shares sold in one go: 5%

5% (nominal) growth in shares is very possible- so if you went for this option you'd need to either pay additional tax, use your ISA allowance, or sell in two tax years (which might be a bit of a faff).

The sharesave schemes used to have a worthwhile bonus interest attached to them- which further detracts from the 5-year scheme.

The 5-year schemes also used to have a delightful option at maturity, which enabled you to leave the options unexercised, continue to accrue interest at a decent rate, and then buy an even larger pot of discounted shares two years later... that has now gone away.

So, overall, I've chosen to use the 3-year schemes now.

However, what I actually did was to use a combination of 3 and 5 years schemes (starting with 1/3rd in the 3-year, and 2/3rds in the 5-year) to get to a point where I'd in time have a 3-year scheme maturing every year, but never have a year in which I did not use my entire allowance.

This gives me a stable income each year, and avoids any risk of triggering CGT- sadly my employer's shares don't rise fast enough for that to be an issue!

Harveys_2

Thank you guys for your advice.

Last time I did a 5 year share save. But this time I'm thinking of splitting it as you are not allowed to cancel and restart but wait till the end of the share save period.