Company Share Incentive Plan

peterg1965

I have just started a new job with a FTSE 100 Company. The Company offers a share incentive plan for employees. A quick look and it appears that if I buy shares on a monthly basis (up to £150) the Company will match that figure and my contributions will also attract tax relief - I am a higher rate tax payer, so the spreadsheet indicates an equivalent 71% discount on shares bought.

I can't see the full details yet, but I assume that I would have to keep the shares for 3 or 5 years and can then withdraw free of tax. Accepting the fact that shares can go down as well as up, this appears to be a compelling benefit. I was considering investing £75/month as part of my broader portfolio of monthly investing - company pension scheme, SIPP and ISA.

Am I missing a catch here?

Gadfium

peterg1965 wrote: »

Am I missing a catch here?

• The shares may fall in value just when you need to sell them.
• You might need the money before the conditional period expires.
• You might not wish to keep the cash in there for 5 years.

If the plan is like the one that my employer offers there's also another big plus. If you sell the shares from within the plan (ie, you don't transfer them out) then they are exempt from CGT.

peterg1965

Just read that shares are forfeited if you leave the Company (resign) within three years of starting. I perhaps need to assure myself that I will stay for three years first.

Lokolo

My company shares have gone from approximately £13, to £35 in the last 4 years, so I have gained a lot from the first few years of contributions and free shares. However, it could have gone the other way.

However, even if it had, I would still be better off (well maybe just break even) due to tax relief savings and free shares (as you have also calculated)

The forfeit, are you sure this is applicable to your shares as well? My forfeit only applies to the matching shares. Obviously companies will have different rules, but I can't see how they could forfeit shares from your money.

peterg1965

You are right, free shares only forfeited but income tax/NI to pay in the bought shares (potentially)

If you leave:
Within three years of receiving an award:
Your Free Shares will be forfeited.
Your Dividend Shares will be taken out of the Plan trust and you may instruct the trustee either to sell these shares or transfer them into your name. You may have to pay additional income tax on the dividend used to acquire the shares.
Between three and five years of receiving an award:
You will have to pay income tax and NICs on the value of your Free Shares (see table on page 8).
Your shares (Free and Dividend) will be taken out of the Plan trust and you may instruct the trustee either to sell all the shares, or sell sufficient to cover your income tax and NICs and transfer the remainder into your name.

eranou

Also note that shares from employee schemes can be transferred directly into an ISA, I'm currently in the process of doing this after leaving their employment. So I can keep holding my shares until I decide its the right time to sell.

BeansOnToast_2

In our scheme, which has a much lower employer contribution (15%) there's no rule about forfeiting the shares. But you do have to pay tax and NI if you leave within 5 years. This doesn't apply if you leave through redundancy, retirement, or if the company is sold.

Note that because you buy the shares monthly, you will have separate 5 year maturity dates for each monthly batch of shares.

Lokolo

eranou wrote: »

Also note that shares from employee schemes can be transferred directly into an ISA, I'm currently in the process of doing this after leaving their employment. So I can keep holding my shares until I decide its the right time to sell.

You can also transfer them to a SIPP and get tax relief on them....

So you get tax relief on buying them, then another dose of tax relief putting them into a SIPP!

AndyT678

peterg1965 wrote: »

I have just started a new job with a FTSE 100 Company. The Company offers a share incentive plan for employees. A quick look and it appears that if I buy shares on a monthly basis (up to £150) the Company will match that figure and my contributions will also attract tax relief - I am a higher rate tax payer, so the spreadsheet indicates an equivalent 71% discount on shares bought.

I can't see the full details yet, but I assume that I would have to keep the shares for 3 or 5 years and can then withdraw free of tax. Accepting the fact that shares can go down as well as up, this appears to be a compelling benefit. I was considering investing £75/month as part of my broader portfolio of monthly investing - company pension scheme, SIPP and ISA.

Am I missing a catch here?

2 things occurred to me that haven't already been mentioned:

1. have you considered AVCs to your company scheme instead of SIPP - there may be advantages to doing that.
2. you could consider increasing your share buying at the expense of ISA contributions given that your ISA won't give you 71% discount on anything.

peterg1965

AndyT678 wrote: »

2 things occurred to me that haven't already been mentioned:

1. have you considered AVCs to your company scheme instead of SIPP - there may be advantages to doing that.
2. you could consider increasing your share buying at the expense of ISA contributions given that your ISA won't give you 71% discount on anything.

Good points, thanks.

I haven't considered AVCs, I am not sure if they have an advantages over me putting £475 net into my SIPP each month. I need to pay into my SIPP to ensure that I don't start losing my personal allowance as my combined earnings (salary and pension) are well above £100k.

Good point regarding ISA vs Shares. I don't want to reduce my ISA contributions of £750/month and am now looking at paying the max £150/month into the Share Incentive Plan. I will definitely pay £75 but just need to ensure that I am not over reaching myself by paying £150.

lawriejones1

Surely if your company matches your purchase (you get 1 share free for every one purchased) the stock price would need to drop by 50% for you not to see a return?

My brother made a similar investment, albeit with much higher amounts, and has benefitted from it. So much so, he is able to pay off his mortgage.

That said, never gamble money you can't afford to lose.