Tax on Partnership Shares

Krash420

Hi,

I've just started a new job where I've been given the opportunity to buy shares in my company (max £150 worth a month), which then comes out of my pre-tax salary, meaning the shares which cost £150 are actually only reducing my salary by around £87 due to the PAYE and NI savings.

I know that if I hold the shares for 5 years, it'll be fully tax free, however given that I'm buying shares every month, it seems likely that all of my shares will never be "tax free" (baring special circumstances such as redundancy).

As such, when I sell, some of them will have a tax liability to them (whilst others will be free as I'll hopefully have held them for 5 years).

Now, currently the tax saving's I'm getting are 40% PAYE and 2% NI, when I sell I'll be paying 20% PAYE and 7% NI, and a further 20% PAYE through self assessment, meaning I'll actually have paid 47% tax when I only saved 42%.

Now assuming the share price doesn't change (I know, not realistic but bare with me), am I correct in thinking that rather than making a tax 'saving' I've in fact just delayed when I pay it, and will in fact pay more tax as they take the lower band of NI which is 7%, rather than the 2% I actually saved when it was taken from my gross pay?

Dead_keen

Yes. But 7% is not a normal NIC rate. And all the tax might be deducted through PAYE.

At the end of the day it will be up to you whether you want to invest in the shares. The potential loss if there were to be a fall in share price would seem to me to be a bigger thing to think about than your tax and NIC position though. Of course the shares might go up in value.

Krash420

Thanks. I'll take the risk and hope to benefit from this.