S&S ISA vs Pension vs BAYE

Be_In_That_Number

Hi all

I was hoping to get some views and comments around my potential decision making on savings.

My company offer SAYE and BAYE schemes. I max out the SAYE schemes each month to £500 and have a scheme maturing each autumn. Last year I did very well as over the past 3 years my companies share price more than doubled. My view is SAYE carries no risk apart from potential loss of value due to inflation - so a no brainer.

I also pay in 11% to my pension, 5% of which is matched by my company.

My dilemma is what best to do with a further £100-£200 I could save...BAYE appeals to me due to the tax breaks if you keep invested for 5 years. However I've read the warnings on here about this being a high risk strategy.

Investing this in my pension seems the best idea, but as I'm 32, I'm slightly concerned that I may want to access the cash earlier e.g. 5-10 years.

Which leads me to conclude that setting up a regular payment to a S&S ISA and investing in funds is a better plan.

I'd be keen to hear of any other suggestions or confirmation that I'm thinking straight.

Ps - I have a decent cash emergency fund and max out the 5% regular savers, so don't need these savings immediately.

Fatbritabroad

If that's the case I don't think BAYE is a bad bet tbh. It's high risk as in I wouldn't put 90% of my wealth in it but you're not and I wouldn't put 90% of my wealth in a single share anyway. You're buying (if it's like my one at work which I max out) shares at either a 20 or 40%effective discount depending on your marginal rate if tax. I'm buying 150 a month for 90 quid net cost so after 5 years I might have 9000 if the share price hadn't moved. In meantime I'm getting dividends of 1.89% which is pretty much what id get in most bank accounts (I've already maxed out the ones I'm prepared to mess about getting)

Meanwhile I'll have provably 100000 in my stocks and shares isa and 250k in my pension so it's a decent bet on a cash rich business with low debt.

It ultimately depends on the state of your company. View it as you would any other share you would buy but with a 40%discount

Be_In_That_Number

Fatbritabroad wrote: »

It ultimately depends on the state of your company. View it as you would any other share you would buy but with a 40%discount

Thanks for this. That was my original thought. I'm saving 40% tax by buying this way, so even if the share price drops, I've got some wiggle room (unless I move companies inside 5 years). Our financial results are good, but you never know how the market might change.

Fatbritabroad

For me its also about debt if the company as well as results. Results can look good because they've bought a load of businesses (ours have just done this). The difference is they paid cash rather than racking g up a load of debt. Think carillion!

Be_In_That_Number

Does anyone know if there's a way of using the S&S ISA to avoid paying tax on shares in the SIP? e.g. If I transfer the shares into a S&S ISA despite having held for under 5 years (when I'd normally have to pay tax and NI). Or is this simply not possible.

Fatbritabroad

I'm pretty sure the answers no as you'd have to bed and ISA it. Doesn't that count as a sale? Even if that's a no I'm pretty sure you'd have to pay tax on this

OUNN

Sadly it's simply not possible to transfer Sip (BAYE) shares into a S7S ISA

You can transfer your SAYE shares to an ISA within a set number of days of the SAYE maturing. If CGT is an issue this is a big help.

If you're a higher rate tax payer the BAYE can work reasonably well. Generally BAYE goes out pre-tax unlike SAYE.
My company match shares purchased through BAYE. So for £125 pre tax each month it actually costs me £60 from my pocket (What i'd be left with from the £125 after tax and NI. In the 62% annoying tax bit). For that £60 cost I get £250 worth of shares.
If I keep them for 5 years they are free of Tax and NI. On top of that BAYE shares unlike SAYE shares are eligible to receive dividends if your company pay them. To lose money over a 5 year period my company shares would need to drop by about 75%. Kind of seems a no brainer

Do you have children? Because BAYE are pre tax it can reduce your earnings if you're in the window to lose Child Benefit. Do your company match any BAYE purchases?

Be_In_That_Number

OUNN wrote: »

Do you have children? Because BAYE are pre tax it can reduce your earnings if you're in the window to lose Child Benefit. Do your company match any BAYE purchases?

Sadly my company doesn't match the share purchases. I don't have children yet, so not looking for that knock-on effect right now.

I think the main decision for me is therefore on the likelihood of staying at my company for the next 5 years. If I left I'd lose all the tax benefits, so perhaps less risky is to put half into my pension and the other half into the SIP.

trevman

Careful with SAYE share purchases. My current situation is that the shares are down in value but our contract is coming to an end.

If I am made redundant due to the contract ending I don't pay tax/NI but I am still forced to sell when shares are down.

If I find a job and leave before the end of the contract I pay tax/NI on the market value (which is down from what I put in), so a forced sale for a loss with tax ontop!

ricky_v

BAYE appeals to me due to the tax breaks if you keep invested for 5 years. However I've read the warnings on here about this being a high risk strategy.

It's only high risk if you've been paying your £150 for upteen years so your entire life savings are in the company and your employer is listed on the AIM or similar. In that case if your employer goes belly up you kiss goodbye to both your life savings and your job.

It's lower risk if your employer is less likely to collapse and you sell shares as soon as they reach the 5 years. A risk still but worth the risk for a discount of 32% for basic rate/42% higher rate tax payers IMO. It's sensible if it's a small part of your overall savings/investments plan. All dividends and gains are exempt from dividends tax/CGT. I pay the max into my scheme as it's a very large company, it pays a dividend every quarter of about 2-3%/year and I get the 32% "discount", however it's certainly not guaranteed and since the firm is American the shares are traded in dollars so there's the FX risk too so something to think about if your employer is foreign.

Fatbritabroad

My plan is to pay in for 5 years and the either sell as I go over the next 5 while starting again or keep the lot for another 5 years and then sell. See how we are doing I guess