Clarification on ShareSave maturation options

Kestril

Hi MSE forum,

My employer ShareSave scheme is approaching maturation in a few months and, at the current share price, I stand to profit around £30,000.

I plan to open a stocks and shares ISA and use the full allowance to put £20,000 of the profitable shares into this ISA wrapper (I would then sell the shares inside the ISA for cash)

I will then be left with around £10,000 profitable shares outside this tax wrapper. Does Capital gains Tax only apply to this £10,000 if I sell all of these shares outside the ISA? i.e it is below the threshold so no tax paid.

Or, does the full £30,000 count toward my CGT allowance therefore I will be taxed on the full £10,000 outside the wrapper?

Thanks,

Kestril

System

"You won’t have to pay if you put them into:
an Individual Savings Account (ISA) within 90 days of buying them
a pension as soon as you buy them"
https://www.gov.uk/tax-employee-share-schemes/save-as-you-earn-saye
Your CGT allowance should cover the other £10k.

bowlhead99

Kestril wrote: »

Or, does the full £30,000 count toward my CGT allowance therefore I will be taxed on the full £10,000 outside the wrapper?

You are only taxed on the profits you make outside the wrapper.

However, in one paragraph you have described making £30,000 'profit', and in other paragraphs you have described only having £10,000 outside the wrapper and £20,000 inside it.

But you won't be able to get as much as £20,000 profit into the wrapper because the wrapper only takes shares worth £20,000 of value, and if there is £20,000 of profit on a pile of shares, the total value of the pile of shares must be worth more than £20,000, and won't fit into a £20,000 wrapper.

So in that case, if there was £30,000 of total profit, and not as much as £20,000 profit is able to get into the wrapper (because the shares going into the wrapper have a total value of £20,000 and a cost of [some amount]), then more than £10,000 of profit will be left outside the wrapper.

What I'm getting at is, you said:

My employer ShareSave scheme is approaching maturation in a few months and, at the current share price, I stand to profit around £30,000.

Within your post, you seem to be mixing up terminology.

By that, do you really mean -

- you will literally make £30,000 of PROFIT (the amount by which the value of the shares exceeds their cost price is £30,000)?

or do you mean

- the total VALUE of the shares you will have is £30,000, and they cost something less than £30,000, so the PROFIT is less than £30,000?

If you mean £30,000 is the VALUE, then you can transfer shares worth £20,000 into an S&S ISA (that's the annual limit for 2019/20 tax year). You can sell that whole £20,000 of shares inside the ISA without any tax to pay because there is no income tax or capital gains tax to pay inside an ISA.

Then you would have shares left over outside your ISA with a value of £10,000 (total £30,000 of value less the £20,000 you moved into the ISA).

If those shares outside the ISA are only worth £10,000, the total gain on them will be less than £10,000 (because you didn't get them for free, so the profit... selling price less purchase price... is less than the £10,000 value). If you sell those £10,000-worth of shares outside the ISA, this gain of I]whatever, it's less than £10,000[/I will easily fit inside your annual capital gains tax exemption of £12,000 per tax year.

- -
However, if you really mean the total PROFIT on the shares is £30,000 (i.e. you will buy the shares with the amount of cash that's been building up in your sharesave account, and then you will sell them for £30,000 more than that purchase price), the answer will be a bit different. Because the total value of the shares would be quite a bit more than £30,000.

In that case, when you transfer shares that have a value of £20,000 into your ISA (annual limit for ISA subscriptions), you will be transferring £20,000 of 'profitable shares' into your ISA, but not as much as £20,000 of 'profit', because those shares had a cost, and profit is the selling price minus cost price...

For example, if all of the shares together had cost £10,000, and they are now worth £40,000, you can take half of the shares and put them in the ISA (£20,000 value limit), and half of the cost of the shares (£5,000) will follow the shares into the ISA; while the other half of the cost of the shares will stay behind with the shares that you didn't transfer into the ISA. So outside the ISA you have shares worth £20,000, and they cost £5,000.

If you were to sell those £20,000 shares with £5,000 cost, outside the ISA you would make £15,000 profit, which is more than the £12,000 annual exemption. If that's the case, you might prefer to split the sales over more than one tax year (although you would be risking the share price falling significantly before you did the second sale).

Kestril

Thanks for the VERY detailed
Response.

To be more specific, i have invested £30,000 into a sharesave scheme and the share price has doubled therefore i will mature the scheme with £60,000 worth of shares (£30,000 profit).

My understanding is, the first £30,000 is not profit, it is my investment? So does not count towards CGT?

So i can cash the first £30,000 and none of it is profit.

The remaining 30,000 would then be split into 20,000 for the ISA and 10,000 cash. Is this how it works?

Vortigern

Kestril wrote: »

To be more specific, i have invested £30,000 into a sharesave scheme and the share price has doubled therefore i will mature the scheme with £60,000 worth of shares (£30,000 profit).

Your understanding is not correct. All the shares are treated equally, so you can't say these shares represent my original investment, and those shares are my profit.

You have £60,000 worth of shares that cost £30,000

You can put £20,000 worth of shares into an ISA, within 90 days of exercising your option. These shares will have cost £10,000. You can sell the shares from the ISA thus avoiding £10,000 of chargeable gain.

This leaves you with £40,000 of shares that cost £20,000

You could sell £24,000 of shares, realising a gain of £12,000, which is within your CGT allowance assuming no other gains.

You now have £16,000 of shares that cost £8,000

You could transfer these to your spouse, who could then sell utilising his/her CGT allowance...

...or wait till the next tax year and they will be covered by that year's allowance.

user1168934

Vortigern wrote: »

Your understanding is not correct. All the shares are treated equally, so you can't say these shares represent my original investment, and those shares are my profit.

You have £60,000 worth of shares that cost £30,000

You can put £20,000 worth of shares into an ISA, within 90 days of exercising your option. These shares will have cost £10,000. You can sell the shares from the ISA thus avoiding £10,000 of chargeable gain.

This leaves you with £40,000 of shares that cost £20,000

You could sell £24,000 of shares, realising a gain of £12,000, which is within your CGT allowance assuming no other gains.

You now have £16,000 of shares that cost £8,000

You could transfer these to your spouse, who could then sell utilising his/her CGT allowance...

...or wait till the next tax year and they will be covered by that year's allowance.

Sorry for hijacking the thread but I have a related question. Is it possible somehow to transfer the shares to your spouse in a way that the spouse can put it in their own ISA?

Vortigern

user1168934 wrote: »

Sorry for hijacking the thread but I have a related question. Is it possible somehow to transfer the shares to your spouse in a way that the spouse can put it in their own ISA?

There is no benefit in doing this as far as CGT is concerned.

You can gift/transfer to spouse. The transferred shares retain their original cost for CGT purposes. When the spouse sells CGT will be payable if the gain exceeds the allowance.

An employee can transfer direct to ISA from an approved share scheme.

The spouse has no such concession and would have to sell the shares outside the ISA, then re-purchase inside the ISA. This sale could create a chargeable gain.

bowlhead99

Vortigern wrote: »

There is no benefit in doing this as far as CGT is concerned.

For the avoidance of doubt for people who might have stopped reading after the first sentence - there is a benefit of gifting some shares to spouse, because the spouse has a whole other £12k annual CGT exemption.

The red herring is 'so the spouse can put it in their own ISA', because no direct transfer is allowed, they can only 'put it into the ISA' by selling outside an ISA (which would create a taxable gain/loss) and then putting the resulting cash in the ISA and buying the shares again inside the ISA with the subscribed cash.

milton1970

Removed to avoid confusion

milton1970

Removed to avoid confusion

System

milton1970 wrote: »

I think that it is much simpler than these replies suggest.

If in an approved SAYE scheme the shares will be allocated at the market price on the date the scheme "matures" (usually you are asked what you wish to do with your SAYE funds - you could just get the £s back!).

So at maturity you will (I assume) buy £60K of shares for £30K - the cost of all the shares for CGT purposes will be the market price at allocation, so say you get 1,000 shares at £60.00 each (market price). Your SAYE offer price of £30 per share is largely irrelevant once you have actioned your maturity request.

If you choose to sell all 1,000 shares immediately & the market price is unchanged at £60.00 then there is no CGT due (I am ignoring fees)

You have 90 days to transfer to an Isa upto isa limits (cureent is £20,000 per tax year) so if you have a full alloowance for 2019/20 then you could transfer 333 shares [note : the Isa provider often requires various confirmation documents so ensure you give yourself time].

It is also possible (if at the cusp of tax years) to split & do 2 transfers - one in 2019/20 (before April 6th) & one in 2020/21 (after April 6th) each for £20,000 (333 shares).

Remainder will be subject to CGT with base costs being the market price at "maturity".

Transfers are valued at market price on "maturity".

Hope this helps,

M

Do you have a source for your dubious assertion that makes no sense whatsoever? It is inconsistent with the example here:
https://www.bdo.co.uk/en-gb/insights/tax/global-employer-services/save-as-you-earn-share-option-plan