Share Incentive Plan to Pension?

westv

I have one of those SIPs at work where you pay a certain amount each month to buy shares and the company gives me 2 extra for every one I buy. From what I've read, to gain the best tax advantage I need to hold them for 5 years. If I sell after 3 years I pay tax on the original purchase price.
We also have sal sacrifice at work.
I am really tempted to sell the shares at 3 years, take the small tax hit and shift the funds to my pension and gain the SS uplift.
Or am I far better waiting the full 5 years?
Or maybe do nothing?

MoneySavingUser

The ones that you buy are "partnership shares".

If you sell within 3 years, you pay Income Tax on the market value at the time when you withdraw them from the trust.

If you sell within 3-5 years you pay Income Tax on the lower of the amount used to buy the shares and the market value at the time when you withdraw them from the trust.

If you sell them after 5 years then there is no IT on sale.

You should leave them in the trust until you want to sell them as the base cost for CGT purposes is the MV when you withdraw them so if you withdraw and sell them straight away then there is no gain.

You presumably also get "free shares" the rules are the same for those except instead of amount paid it is MV at allocation for 3-5 years.

The 2 shares you get are "matching" shares and the rules are the same as for free shares.

Do you also get "dividend" shares where the dividends are used to buy new shares? - there is no income tax on those if you sell them after 3 years.

Whether you should sell them is dependent on what you think will happen to the share price and what dividends you get from them (remember £5k of dividends are tax-free nowadays).

You could also transfer them into an ISA in the future.

https://www.gov.uk/tax-employee-share-schemes/transferring-your-shares-to-an-isa

You can transfer up to £15,240 of employee shares into a stocks and shares Individual Savings Account (ISA) if you have shares in a:

Save As You Earn (SAYE) scheme
Share Incentive Plan (SIP)

Your ISA provider must agree to the transfer.

You won’t have to pay Capital Gains Tax on any gains you make on your shares if you move them to an ISA.

You must transfer your shares to your ISA within 90 days of when you took out your SIP or SAYE shares.

These shares will count towards your £15,240 ISA limit. They can’t be in addition to the limit.

Ask your employer or ISA provider for more information on how to transfer.

I wonder if there is a pension provider who will accept the shares themselves as contributions? Otherwise, yes you need to sell and contribute cash.

westv

If I used an ISA or another provider presumably I'd miss out on any salary sacrifice gain?
Yes, we also get dividend shares.

MoneySavingUser

Yes, that is correct no SS uplift if you use an ISA but you can get all the dividends tax-free indefinitely and no CGT or IT on withdrawal.

Assuming the ISA isn't used and you want to make a contribution to the pension:

Remember if you sell any shares which are subject to Income Tax, then you have to pay IT on the sale, so the income tax you save from the SS arrangement just gets you a refund of the tax you just paid so would appear to be cost-neutral?

Also, I think there might be NICs payable on the sale of the shares if they are readily convertible assets - is the company you work for a listed company? - if so there will be a charge to income tax and NICs if you sell within the 3/5 years. So you will pay IT and NICs on sale and then recover them when you put the cash into the pension I think.

So it is best to sell free, partnership and matching shares after 5 years to get the most benefit, and dividend shares after 3 years so you might want to sell dividend shares first unless you are planning to sell all the shares at once?

See:

http://www.legislation.gov.uk/ukpga/2003/1/section/505
http://www.legislation.gov.uk/ukpga/2003/1/section/509
http://www.legislation.gov.uk/ukpga/2003/1/section/696

The IT and NICs on sale should be deducted via PAYE.

westv

Well a quick (very rough) calculations shows (assuming no growth in share price):-

Cost to me for 12 months = £1,500 gross (125x12) - £1,020 net

Value of shares bought + additional shares = £ 4,500 (£125x12x3)
Less tax and NI £480 (£1,500 x 32%)= Net value £4,020

SS gross payment = £5,912

Gain from SS = £1,892