CGT avoidance on selling shares from SAYE 3 Year Sharescheme

eviekins

Hi there,
My partner has been saving £500 a month (total 18k) in his company share scheme for the last 3 years. It recently finished and he opted to buy the shares and we have received the certificate in the post.
We want to now sell the shares as there is currently an increase in price of the shares of nearly 16k.
We realise this is over the 12k annual CGT limit, and if there is a simple way of avoiding paying the tax that would be great, but finding the information online a bit confusing! Although we have been together 17 years we arent married, so transferring to me wouldn't work. The other option is an ISA. He currently does not hold any type of ISA, does it need to be a stocks and shares ISA or is a cash ISA okay? Would we just sell all the shares (approx 34k worth) and then put approx 4k in to an ISA afterwards?
His boss has also just sold his shares and told him he doesnt need to worry about CGT because it was a 3 year scheme and so the financial gain is spread across 3 years... but I have been unable to find anything online backing this up?
We have never held shares so this is all completely new to us and to be honest I feel like we need the process ABC'd to us so we do it the most financially savvy way !
We would like to sell quickly while the share price is high, but worried if we click sell now we will be liable for CGT by rushing in and selling it the wrong way!
Thank you so much for any help you can offer, and apologies for being so clueless on all of this! ��
Evie x

BoGoF

Worst case scenario is tax on £4000 @ 28% (if higher rate) or 18% if basic rate.

Transferring to an ISA won't stop a chargeable gain. Only option is to sell £12000 this tax year and remainder next.

eviekins

Hes a higher tax rate payer... I believe the rates you quote are for property CGT though? As this isnt property I think its 20% he will pay or 10% for lower rate taxpayers.
Avoiding paying £800 in CGT would be good, it does mention transferring to an ISA to avoid CGT but im not clear on exactly how as we've not had shares before and dont currently have any ISA accounts.

kuratowski

To avoid paying CGT, you have to move the shares to a Stocks & Shares ISA, you can't sell the shares and put the cash in an ISA.

It's explained here:

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

MDMD

kuratowski wrote: »

To avoid paying CGT, you have to move the shares to a Stocks & Shares ISA, you can't sell the shares and put the cash in an ISA.

It's explained here:

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

But remember the amount that is moved to an ISA is the value of the shares when you transfer them. So you can only transfer up to £20,000 of shares to a shares ISA before you sell them within the ISA.

You can keep the balance outside of an ISA and sell them and use the normal CGT allowance.

Yellow_mango

One possibility is to sell enough now to realise a gain of just below £12,000 now (assuming you have no other capital gains this year) and either sell the remainder after 5 April 2020 (next tax year) or transfer them into an ISA within the 90 days and keep them as long as you want.

eviekins

Yellow_mango wrote: »

One possibility is to sell enough now to realise a gain of just below £12,000 now (assuming you have no other capital gains this year) and either sell the remainder after 5 April 2020 (next tax year) or transfer them into an ISA within the 90 days and keep them as long as you want.

There will be no other CGT this year no. Can I clarify why you say, just under 12k?
If we sell £30,000 worth, that would be a 12k gain on the 18k saved over the 3 years, although there is a fee of £184.50 and a £10 compliance charge, I take it these fees are deducted from the 12k gain in CGT perspective?

Thanks for your help!

Yellow_mango

There will be no other CGT this year no. Can I clarify why you say, just under 12k?
If we sell £30,000 worth, that would be a 12k gain on the 18k saved over the 3 years, although there is a fee of £184.50 and a £10 compliance charge, I take it these fees are deducted from the 12k gain in CGT perspective?

Thanks for your help!

If your gains are even slightly over £12k then technically you will need to file a tax return and pay cgt on any excess. It would therefore be easier if you can work it out so the gain is just below this threshold.

You can deduct costs such as fees when calculating the gain.

If your total gain is less than £12k (and for completeness assuming the total sales proceeds are less than £48k, but it sounds like that is the case) then you will not need to report the gain on a tax return at all.

You should of course make sure you keep good records of the transactions and calculations for at least 6 years though just in case.

bowlhead99

eviekins wrote: »

His boss has also just sold his shares and told him he doesnt need to worry about CGT because it was a 3 year scheme and so the financial gain is spread across 3 years... but I have been unable to find anything online backing this up?

His boss is talking rubbish, so ignore that. The gain is made when you sell the shares for more than you pay for them (and only if you are selling them outside an ISA). It doesn't matter how long it took to accumulate the money to buy the shares.

eviekins wrote: »

There will be no other CGT this year no. Can I clarify why you say, just under 12k?

He has an exemption for the first £12,000 of gains made in a single tax year.

The total gain is about £16k, you say. If you sell about three quarters of the shares, you will have made a gain of about £12k ; because if the whole amount of shares were carrying a gain of £16k, and you only sell three quarters of the shares, you will only make a gain of three quarters of the £16k, which is £12k. The other shares, which are not yet sold, have not made any gain at all, as far as the tax man is concerned.

If we sell £30,000 worth, that would be a 12k gain on the 18k saved over the 3 years.

Not quite. You said he paid £18k and they are now worth ~£16k more than that, so in total they are worth ~£34k.

If you sell shares worth £30k, you are selling about 30/34ths of the shares. 30/34ths of the shares cost, on average, 30/34ths of £18k, which is about £15880. If you sell shares that cost £15880 for £30000, you have made a gain of £14220, although you are right that you can deduct the £180ish of fees from your proceeds to get a slightly lower gain. The gain net of charges is still over his £12k annual exemption, so there would still be tax to pay.

although there is a fee of £184.50 and a £10 compliance charge, I take it these fees are deducted from the 12k gain in CGT perspective?

Yes.

To cash out as quickly and efficiently as possible, and given that he has not used his 2019/20 ISA allowance, he should:

a) work out what the total gain would be at current prices;

b) sell the proportion of the shares that would create a gain of less than £12k. For example 75%. But

c) err on the side of caution when doing the calculation for (b), because the price may rise while he is waiting for the sale. So perhaps aim for selling just 70% of the shares and then he can afford the price to rise a bit before the sale goes through, without risking being over the £12k annual exemption for gains and having some gains being taxable. Or just have a lower target profit like £10k to give lots of headroom for a surprise last-minute gain.

c) when the sale has gone through, arrange for the remaining shares to be transferred to a new s&s ISA which he has opened in the meantime and not funded in cash.

d) Don't leave (c) too long- need to ensure the transfer completes within 90 days of him buying the shares in the first place so that they qualify to be transferred in; and ensure the provider of that S&S ISA will take transfers-in of maturing share-scheme shares; for example don't use a cash ISA provider that can only hold cash, or an investment ISA provider that can only hold investment funds.

e) as soon as the rest of the shares are sitting in the ISA, sell them inside the ISA. Share sales inside an ISA are outside the scope of capital gains tax. You can then take the resulting cash out of the ISA, or keep it in the ISA and buy a more suitable long-term investment (e.g. An investment fund rather than shares in his employer).

Also, (f), after first focusing on getting a good result for himself within the deadlines, tell his boss that he was wrong about how tax works - point him to the gov.uk website or this thread as an example. If his boss won't listen, at least point his other colleagues to the correct guidance. I expect there is some scheme literature which explains it. If the boss is a !!!! about it and your partner is pally with HR, mention that the boss is misrepresenting the benefits of the share scheme and potentially causing people to sleepwalk into an unwanted tax bill.

It may be that the boss has access to a completely different scheme so doesn't really understand the rules of your partner's, or is simply not investing the maximum so doesn't have a tax problem himself and has not looked into it properly.

eviekins

bowlhead99 wrote: »

His boss is talking rubbish, so ignore that. The gain is made when you sell the shares for more than you pay for them (and only if you are selling them outside an ISA). It doesn't matter how long it took to accumulate the money to buy the shares.


He has an exemption for the first £12,000 of gains made in a single tax year.

The total gain is about £16k, you say. If you sell about three quarters of the shares, you will have made a gain of about £12k ; because if the whole amount of shares were carrying a gain of £16k, and you only sell three quarters of the shares, you will only make a gain of three quarters of the £16k, which is £12k. The other shares, which are not yet sold, have not made any gain at all, as far as the tax man is concerned.


Not quite. You said he paid £18k and they are now worth ~£16k more than that, so in total they are worth ~£34k.

If you sell shares worth £30k, you are selling about 30/34ths of the shares. 30/34ths of the shares cost, on average, 30/34ths of £18k, which is about £15880. If you sell shares that cost £15880 for £30000, you have made a gain of £14220, although you are right that you can deduct the £180ish of fees from your proceeds to get a slightly lower gain. The gain net of charges is still over his £12k annual exemption, so there would still be tax to pay.

Yes.

To cash out as quickly and efficiently as possible, and given that he has not used his 2019/20 ISA allowance, he should:

a) work out what the total gain would be at current prices;

b) sell the proportion of the shares that would create a gain of less than £12k. For example 75%. But

c) err on the side of caution when doing the calculation for (b), because the price may rise while he is waiting for the sale. So perhaps aim for selling just 70% of the shares and then he can afford the price to rise a bit before the sale goes through, without risking being over the £12k annual exemption for gains and having some gains being taxable. Or just have a lower target profit like £10k to give lots of headroom for a surprise last-minute gain.

c) when the sale has gone through, arrange for the remaining shares to be transferred to a new s&s ISA which he has opened in the meantime and not funded in cash.

d) Don't leave (c) too long- need to ensure the transfer completes within 90 days of him buying the shares in the first place so that they qualify to be transferred in; and ensure the provider of that S&S ISA will take transfers-in of maturing share-scheme shares; for example don't use a cash ISA provider that can only hold cash, or an investment ISA provider that can only hold investment funds.

e) as soon as the rest of the shares are sitting in the ISA, sell them inside the ISA. Share sales inside an ISA are outside the scope of capital gains tax. You can then take the resulting cash out of the ISA, or keep it in the ISA and buy a more suitable long-term investment (e.g. An investment fund rather than shares in his employer).

Also, (f), after first focusing on getting a good result for himself within the deadlines, tell his boss that he was wrong about how tax works - point him to the gov.uk website or this thread as an example. If his boss won't listen, at least point his other colleagues to the correct guidance. I expect there is some scheme literature which explains it. If the boss is a !!!! about it and your partner is pally with HR, mention that the boss is misrepresenting the benefits of the share scheme and potentially causing people to sleepwalk into an unwanted tax bill.

It may be that the boss has access to a completely different scheme so doesn't really understand the rules of your partner's, or is simply not investing the maximum so doesn't have a tax problem himself and has not looked into it properly.

Thank you so much for such a thorough detailed response!

Is there a s&s isa provider that you know of that does accept transfers in or one you would recommend?

Also, does anyone know how it works when you sell, are you guaranteed the share price showing at that moment in time or can it change?

How about selling 'out of market hours' like on the weekend or before they open or after they close. Are you guaranteed the price its showing when the market closed or will it be an unknown price from when the market reopens?

Thank you in advance!

Edi81

Halifax share dealing accept them but not sure what their fees are like compared to others. The important part is the Letter of Appropriation which proves the shares come from a HMRC approved scheme and be placed in the ISA.

Do you have an online account for the shares at the moment? my employer uses Equiniti to administer their scheme and you can get the letter online.