Sharesve Scheme & Share Incentive Plan

Ms_Chocaholic

Hi

I wonder if you can help. My son works for a company who offer a Sharesave Scheme and he has been offered the chance to join the Sharesave Scheme and also to join the Share Incentive Plan.

Does anyone know much about these and can offer some knowledgeable advice.

Thank you

Ms C x

Lokolo

Different companies have different setups, so telling us they've offered for you join a share scheme is not very useful.

The different schemes have different tax impacts as well. Perhaps give us some more information?

xylophone

My niece has a share save plan with her company and is very happy with it- this might be worth a look- it contains information on SSP and SIP but your son should read the information provided to him by his firm http://www.employeeshareschemes.co.uk/plans-savings.aspx

See also https://www.gov.uk/tax-employee-share-schemes/overview

Ms_Chocaholic

Hi
The scheme is run by Inter-serve and the sharesave part of the scheme says it allows you tosave between £5-£50 pcm and then in 3 years you may take your savings in cash or buy shares at a discounted price set at the start of the savings period. The exercise price (529.00p)

The SIP part allows you to contribute up to £1,800 each tax year and buy shares commission free. Contributions are deducted from gross pay and as a result you will pay less income tax & NI.

Vortigern

He can't really lose on the sharesave plan, because the decision to buy shares or not is made at the end of the 3 years. If the price has fallen below the option price he can just take his cash out. All he will have lost is a the small amount of interest he could have earned by saving in a bank.

The SIP is a bit more of a risk. Once the shares are bought, they have to be held for a few years to avoid any tax penalties. If the price falls during those few years he could make a loss.

bowlhead99

The sharesave would be a no-brainer then, because the £50 a month is just a rising pot of cash which can never be worth less than what he puts into it, because it can be taken back as cash by him at the end or when he leaves the company.

So the only 'cost' is that £50 put away this year and got back in 2017 might not buy quite as many beers or loaves of bread as it would buy today. Meanwhile if the share price stays the same as today, or even falls a bit, you can use the cash to buy shares at the discount price, immediately sell them and make free money. If the share price has gone up in the meantime (and generally, share prices do go up over time but it's not guaranteed they will over this particular time period), you will make even more free money. So, with such a good potential upside and no real downside I would be happy to put £500 a month into that sort of scheme if I could scrape it together and they would let me.

The second one, the share incentive plan presumably has some other small print if it's a tax-approved scheme - for example a minimum period you have to own the shares to get them at this effective bargain price and not have to pay the full tax and NI that would have been payable if you'd just taken the cash. Sometimes such schemes also have a bonus element where for every X shares you buy through the scheme, the company buys you a free one or two (again, minimum period of ownership to be allowed to keep them, so that it truly is an 'incentive' plan to keep working for the company).

This second scheme carries more risk because if you actually own and keep the companies shares and they fall in value, you can lose some of your £1800's worth (I guess that figure was worked out on 10% of his salary or something). Of course if you are buying them with pretax money - and especially if there are any free shares being given out - then your risk is not as high as if you were buying them with 'real' net pay at full price.

This can be a great way for someone who might not have an awful lot of free cash to start building themselves a little nest egg for the future. Saving / investing rather than spending is a good thing. But if money is tight, I would max out the first one as a priority (because it's risk free) and then put less than the maximum on the second one, and only if I was willing to take a bit of a chance. The odds are probably in his favour given the tax benefits but I wouldn't take out a bank loan to try and get in the scheme at all costs.

Of course, if he definitely definitely plans to leave in a year or two and really could not benefit, you can avoid them both.

ermine

Sharesave is basically a do it, do it now and do it to the max. If you expect to work in the company for several years (> 6 years) there's a case to be made for taking 33% of the allocation this year, 33% next and 33% in the third and then roll these over. You absolutely can't lose, though obviously the opportunity cost of the money (paying down debts) is an issue as always.

I got far too hung up about the possibility of losing money on ESIP and only jumped to it a couple of years before I left. If you are saving 42% tax an NI going in then for every £58 you put in you get £100 worth of shares (and also the dividends from the off because unlike sharesave you own the shares from Day 1)

So you can eat a SP drop of 42% before you make an actual loss, or more if you got dividends. It does happen, and there's an argument to be made that shares are high-ish at the moment but it's still a pretty good bet. Just not a one-way bet like Sharesave.

But if he has any consumer debt of any sort he needs to pay that off before investing...

Ms_Chocaholic

Thank you for all your help, I'll let my son know.

Ms Choc xxx

gav_sw20

Similar question here.

My company do a similar share scheme for 3 or 5 years, with money taken from gross pay, therefore I don't pay tax (high bracket) or NI.

If I took the 5 year option and paid in £250pcm what would I get back after the term ended using the following figures ?
Share price today = 300p
Assumed share price in 2019 = 350p

Would it just be my £15k or would I get something else back too ?

ermine

gav_sw20 wrote: »

Similar question here.
My company do a similar share scheme for 3 or 5 years, with money taken from gross pay, therefore I don't pay tax (high bracket) or NI.
?

Sharesave is taken from net pay (after tax and NI is taken off) and is the most likely thing involving a 3 or 5 year term. With sharesave you take an option on buying the shares and save x amount for 3 or 5 years. When the term is up they ask you if Sir would like to take up the option with the proceeds of your savings? Obviously if the SP has increased you say yes please, if not you take the money - if you really want shares in your employer go on the open market and buy them for less than the option price.

Because you hold an option you get no dividends for the 3 or 5 years because you don't own the shares, although you have an optional claim on them.

Employee share incentive plans are where you buy the shares from pre-tax income, and you immediately become eligible for dividends because you own them from the get-go, subject to the usual ex-div dates etc. You must hold the shares for at least 5 years ISTR else you'd have to pay the tax an NI you didn't pay when you bought them. clearly this is more advantageous for higher rate taxpayers.

If I took the 5 year option and paid in £250pcm what would I get back after the term ended using the following figures ?
Share price today = 300p
Assumed share price in 2019 = 350p

Sounds like sharesave, so, your profit would be 50/300 * 250 * 5 * 12 = 2500 and you would get £17500, less any dealing costs to sell.

The Government guide to these schemes describes them reasonably well

There is a subtle wrinkle that I never realised in over 20 years of taking Sharesave which is that the 5 year scheme is better value because your money is exposed to the market for longer so you are more likely to benefit. Since this is a one way bet it's rude not to take it...

bowlhead99

ermine wrote: »

There is a subtle wrinkle that I never realised in over 20 years of taking Sharesave which is that the 5 year scheme is better value because your money is exposed to the market for longer so you are more likely to benefit. Since this is a one way bet it's rude not to take it...

You're right that the binary bet is probably more likely to come down as a winner if left for longer. Of course, as it's a simple binary bet (digital rather than analogue?) there is a potential issue in choosing the longer option, in that you can't necessarily get paid out 37 to 59 /60ths of the benefit if you only work for the company for 3 to 5 years but then resign or get fired.

All companies will have their own rules on what is available to you as a leaver depending on the circumstances of you leaving. In some cases - say if you leave through redundancy or disability, you can just spend your proceeds on discounted shares as if the scheme had matured. If you choose to waltz off into the sunset because you find a better job or want to relocate or simply don't like working there any more, or worse still you get fired without it being redundancy: you don't necessarily get the same choice, depending on your company's rules.

So as the average tenure in a job is probably lower now than it was a few decades back, that may be a consideration ; you might think being around for a 3 year payout is less risky than aiming for a bigger 5 year payout and then needing to keep your job whether you still want it or not.