Company Share Incentive Plan

peterg1965

lawriejones1 wrote: »

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.

It's actually more than 50% that it would have to drop as the shares are bought with salary sacrifice which means you save on tax and NI as well. I think the saving is something like 61% if you invest the max £150/month.

Perelandra

These schemes are, basically, very good yes. Your summary above is correct.




A couple more points:




You will get dividends on all the shares you buy. So if you do leave early, and have to forfeit the shares the company bought for you, and pay income tax on the shares you bought yourself, then you will still have benefitted from a very high yield (3.3x the normal for you) on these shares- provided, of course, that your employer pays dividends.


You will also find that you can re-invest the dividends without having to pay any income tax on them (useful as you're a higher rate taxpayer). Since these would be inside the scheme they'd also be protected from CGT- check your scheme to see if this can be done. If you did lose early, HMRC would claw pay this tax though (as per your comment below).

gadgetmind

My company has just started a SIP scheme as above (we previously did SAYE shares, etc.) and I've applied for the full amount each month. Basically, there is an asymmetrical rewards versus risk ratio due to the tax relief and matching shares, which is exactly what I look for in all investments.

peterg1965

Its a no brainer then! I believe that Divi's are reinvested in Shares within the SIP.

PeacefulWaters

peterg1965 wrote: »

Its a no brainer then! I believe that Divi's are reinvested in Shares within the SIP.

I'm a great believer in maximising these schemes, but they do leave you exposed to a single company share.

As a former HBOS employee I saw £40k / 98% wiped off the value of my various holdings.

So go for it, understand the risks, don't commit the money to future spending while it's locked in and diversify away from the single company share as soon as it's unencumbered by tax liability.

The invest > tax relief > matching shares > pension > more tax relief concept could be a big winner.

BeansOnToast_2

PeacefulWaters wrote: »

So go for it, understand the risks, don't commit the money to future spending while it's locked in and diversify away from the single company share as soon as it's unencumbered by tax liability.

In my scheme there is a dealing cost for selling of £20. The shares are purchased monthly and so become unencumbered monthly too. It would not make economic sense to sell as soon as they become unencumbered because there would be a £20 monthly fee if I did so.

I have a rule that I sell when I have £4000 worth of unencumbered shares, which means the fee is 0.5%.

As it happens, I've just reached that level, so I'm just about to sell. This will be my second sale from the scheme.

atush

As Peaceful says there is a risk, but as long as you move the shares out and then reinvest in something else after 5 years (then join the new scheme) you are quids in?

Even better risk wise are the schemes where your money remains in cash until it comes to maturity and you buy shares on a discount- if the share price drops below your buying price you just dont buy.

gadgetmind

Yes, SAYE is risk free, while SIP carries some small risk. However, if I took that £150 as income, I'd get less than half of it in my pocket, so with matching shares too, the risk is low.

I also expect to be able to get everything free of income tax and CGT too using the rather generous rules that apply to retirement.