SAYE (save as you earn) and CGT

TediousPhoenix

Hi have a 3 year SAYE company share scheme maturing in December. The current indicative value means I will make more than £32k profit at today's prices.

What are my options to reduce my CGT liability?

I have a spouse, if that helps. I found some old articles - going back to 2011 - that said I could transfer some share to a spouse. Other articles mentioned transferring some shares into an ISA.

I'm new to this and wanted some advice. Is a share transfer possible within the company's portal, or would I have to do this outside of it?

Thanks in advance.

MallyGirl

You can transfer into an ISA but the £20k ISA limit applies so you wouldn't get it all in there if you have made £32k profit
You can transfer enough shares to spouse for them to sell just under the CGT limit. I did that once.
You may need to hold on to some till next tax year - or just take the tax hit on the remainder if you don't want to wait or don't want too much money tied up in single share in the company you also work for (too many eggs in one basket)

TediousPhoenix

My initial investment come December will be £18k. (18k+32k=50k)

So I can take out £11.7k plus the £18k myself as cash, transfer £11.7k as shares to my spouse and put the £8.6k as shares in an S&S ISA?

bowlhead99

Not quite. You can't decide that all of the cost of buying the shares is attributed to one part of the shares you're selling rather than to the shares you put into the ISA or transfer to your spouse. Every single share that's going to be sold or moved into an ISA will have a cost and a market value resulting in a profit on each share when sold. One way to think of it is as follows.

Firstly, for 2019/20 tax year, the CGT allowance will be £12k per person (an increase from this year's £11.7k). Which is nice because it's a round number for these example calculations.

If shares that cost £18k can be sold for a market value of £50k making £32k of total profit, what you can say is:

32/50ths of every pound of sales proceeds will be profit (capital gains), while
18/50ths of the proceeds will be a return of the original cost of investment.

If you are able to make £12k of capital gains without going over your annual exemption, you could sell shares with a market value of... 12 X 50/32 = £18.75k of shares, without going over your exemption. Because the profit, which we know is 32/50ths of the proceeds, would be be 32/50ths of £18.75k, which is only £12k and within your annual exemption limit (only just). The cost of those sales you made would be 18/50ths of the proceeds or £6.75k.

You could also give £18.75k worth of shares to your spouse. When they sell them, although they got the shares for free as a gift from you, the cost will be deemed to be the same amount as you had paid for them, i.e. £6.75k, and if they sell them for £18.75k they'll make £12k profit just like you did, and won't have any gains in excess of their annual allowance.

Having sold shares with a market value of £37.5k between you (2 lots of 18.75k sales proceeds) you still have £12.5k-worth of shares remaining. As long as you have £12.5k of spare ISA allowance at that point, you can move all those remaining shares directly into a S&S ISA.

Once they are in the ISA you can sell them with no CGT consequences whatsoever - profits and losses inside an ISA are of no interest to the taxman. You could then take the resulting cash out of the ISA and spend or invest it elsewhere, or keep it in the ISA and invest it in something else.

Some practicalities:

- you have no idea whether the shares by the time you get to December will be worth more or less than the £50k+ implied by today's prices. To be prudent, don't use much of your 2019/20 ISA allowance and then you'll have capacity for a nice big contribution of sharesave shares -might need to be bigger than the £12.5k value implied today

- the stock market price will move between the time you start the transfer process to you spouse and the time (s)he sells them. Best to assume the price will rise by some margin, and transfer fewer shares than was implied by the 'these shares will make exactly £12k profit so no tax to pay' calculation. If you have a decent amount of headroom in your ISA allowance you can hold some shares back from the spouse transfer and mop them up via that route instead.

TediousPhoenix

Thank you so much for that explanation - it really makes sense.

I'll keep back my ISA allowance for 19/20.

Yep - there are no guarantees in the stock market world. If I'm honest I was hoping for a little return, or worst case my money back. I wasn't expecting the share price to rise that much... but in the back of my mind I still know it's unrealised profit and anything could happen between now and December!

Good last point, also.