Tax question around SAYE

superkopite

Hi all,

I have about 6k in SAYE options that are showing no signs of maturing anywhere near the option price.

If I cancel them all now the money will be sent to my bank account but I presume I will pay tax on it.

My question is, if I wait the full 5 year term and then choose not to buy the shares and get a refund on all that I have invested, will I pay tax then?

Regards

James

iFart

Generally speaking your SAYE contributions are deducted from your salary after tax and NI have been sorted.

Therefore, there shouldn't be any further tax to pay if you choose to have your contributions returned.

AndyT678

The only tax implication on my SAYE scheme is CGT on the share price appreciation. You should be able to just take the money out.

superkopite

Thanks, you're right. I had thought that my deductions were made before tax.

That's amazing, I can cancel them all and get a nice lump sum back to invest elsewhere!

Gadfium

How long have they left to run? Normally tou get a bonus at the end of the term regardless if you exercise the option or not. If you are close to the full term then it might be worth hanging on to get this.

superkopite

Thanks, you're right I should check the bonus. Still have 18 months to wait until maturity so unless it's huge I think I am still better off cancelling now

bowlhead99

superkopite wrote: »

Thanks, you're right I should check the bonus. Still have 18 months to wait until maturity so unless it's huge I think I am still better off cancelling now

It depends what you would do with the money if you cancelled.

If you only have 18m to mature on a 5 year plan you are 70% of the way towards the end. Usually these things are structured so that if you don't want to buy the shares you can take a cash return that is something close to a 'savings' interest rate on having all of the money tied up in the SAYE plan. That's the 'bonus' you're talking about, right?

So, so far you have 'banked' 3.5 years of savings interest on what you have tied up in the plan... you just need to keep participating to cash out in another 1.5 years. If you take it out without the bonus you have to go and invest it somewhere else and try to earn over the next 1.5 years what the bonus would have been for the full 5 years. This means you need a very high interest rate.

Given interest rates are at an all time low, you might not achieve that challenge, assuming you have already been making use of the very best interest bearing bank accounts and don't have the capacity to put another £6k into them (all the best-paying accounts have caps on how much you can put into them to get the highest rates).

Obviously if you need the 'nice lump sum' for spending, that's a different matter. But £6k for only 18months (plus a drip feed of the remaining amount of cash you would otherwise have been putting into the SAYE scheme) is not going to make you thousands and thousands of pounds. You just have to do the maths on what the terminal bonus would be against what interest after tax you could earn on your £6k plus your new money elsewhere.

As an example, with minimal messing around you could open a Club Lloyds bank account which pays 4% on the first £5000 and gives you a regular saver account paying 4% on up to £400 a month of new money. So by January you'd have a home for £6200, by February £6600 etc. Easily enough capacity to accommodate the new ~£150pm I assume you've been putting in your SAYE to get to £6000 in 3.5 years.

If you continued to feed your £150s into the Club Lloyds Regular Saver while keeping a £5k lump in the main current account, by 18 months from now you'd probably end up with about £400 of interest (before tax). Compare that to continuing with the SAYE and cashing out the terminal bonus there. If it's marginal, I would probably stick with the SAYE if there's even an outside chance the company's fortunes can recover and hit the option price for significantly higher gains.

Obviously Lloyds is just an example and there are some terms and conditions to meet to qualify for the rates. Some banks pay even higher rates but on smaller amounts of money so you need multiple accounts with multiple providers to improve the rate.