Works share scheme and reinvesting privately

MartialArtMan

The company I work for gives us shares each year but when we cash them in we have to pay tax (I'm not sure how this is calculated if someone could enlighten me that would be great!). So I'm thinking it would be a good idea to cash them in at work whilst the share price is low as this will equal paying less tax, then I'd like to reinvest the money by buying company (that I work for) shares privately through a broker like Hargreaves and Lansdown. My knowledge of dealing shares is pretty much zero but I'm lead to believe that if I open a stocks and shares ISA account with H&L then I will not pay tax on any gains I make (?). Is that sound logic or have I got it all wrong?!

One further question, which is probably very naive, to buy shares via a Stocks and Shares ISA do I have to put money into the ISA then purchase the shares using that money or do I buy shares cash and withdraw into the S&S ISA?

george4064

Which specific type of work share scheme are you actually in? There are a few different types that each have their own features, tax benefits etc.

you can read more about the different scheme types here: https://www.gov.uk/tax-employee-share-schemes

dont_look_now

If you really know when your employer's share price is low and when it's high (not just with hindsight), then you should put every spare penny you can raise (not just the money you obtained from the employee share scheme) into buying the shares inside an ISA when they are low, and sell again (tax-free) when they are high.

And the same applies for any other share (of the thousands of different shares worldwide that can be bought inside ISAs).

But do you really have this knowledge, for your employer's shares, or for any others? Or are you just identifying the highs and lows with hindsight?

The usual argument is that you are already over-exposed to the fortunes of your employer (because if the company does unexpectedly badly and hence the share price falls, you might lose your job for the same reason, or at least your prospects for promotions and raises might become less good), so you should generally avoid investing in their shares specifically. You should probably also avoid investing in any individual shares, again to avoid over-exposure to individual businesses, and instead go for collective investments which spread your money across shares in many different companies.

Cashing in your employer scheme shares, and reinvesting in a collective investment inside an ISA, can be a good move. (Or inside a pension.)

However, as george suggests, when and how it's best to do so can depend on the details of what kind of share scheme it is. Some schemes offer useful tax reductions or cut-price shares, so it may be worth sticking with them long enough to realize those benefits properly, before reinvesting elsewhere. The time to make that switch should be as soon as the tax and other benefits can be fully taken advantage of, not when the share price is low.

btcp

I have both RSU and ESPP. I sell some RSU on vest and put money into pension and shares ISA in equal portions. I sell all ESPP as soon as I get them as historically I have profit buying through the scheme with a discount. 

MartialArtMan

Okay I've done a little digging about and we use a SIP share scheme, I'm still a bit confused about the tax issue on this, as far as I'm aware we will always pay tax when withdrawing yet the Gov site says that if you leave the shares for 5 years you will not pay any tax???
I hear you about the company and basing my decision to invest in them according to past performance however the market that we are involved in is very high growth industry and the company I work for are leading the way having invested millions already and investing millions more as we speak, not to mention plenty of money in the bank....
Please forgive my naivety and thanks for your imput  

kangoora

I hear you about the company and basing my decision to invest in them according to past performance however the market that we are involved in is very high growth industry and the company I work for are leading the way having invested millions already and investing millions more as we speak, not to mention plenty of money in the bank....

I used to work for Nortel Networks, huge canadian telecomms conglomerate, market leading, best (arguably) telephone exchanges in the world, network switching, frame relay, data servers etc.

At its height, Nortel accounted for more than a third of the total valuation of all the companies listed on the Toronto Stock Exchange (TSX), employing 94,500 worldwide, with 25,900 in Canada alone.[3][41] Nortel's market capitalization fell from C$398 billion in September 2000 to less than C$5 billion in August 2002, as Nortel's stock price plunged from C$124 to C$0.47. When Nortel's stock crashed, it took with it a wide swath of Canadian investors and pension funds and left 60,000 Nortel employees unemployed.

Don't ever think a company is too big or too clever to go bust..........

kangoora

Additionally at BT there were probably thousands who held onto their shares because they were hit the dizzying heights of £10/share. Then the telecom bubble burst and they dropped to £1.66 over 2 years and in the last 20 years have never crept over £5/share.

I had options at 74p in mid 2010's, sold the lot over 2-3 years (to avoid CGT) at various prices from £4.50 (ish) to £3.80 (ish), the BT share price is now sitting at £1.07p..........

I'm not saying don't ever hold shares in the company you work for, just saying that cashing in profits and diversifying makes a lot more sense - as long as you keep working at the company you will (presumably) get more options/schemes.

george4064

MartialArtMan said:

Okay I've done a little digging about and we use a SIP share scheme, I'm still a bit confused about the tax issue on this, as far as I'm aware we will always pay tax when withdrawing yet the Gov site says that if you leave the shares for 5 years you will not pay any tax???
I hear you about the company and basing my decision to invest in them according to past performance however the market that we are involved in is very high growth industry and the company I work for are leading the way having invested millions already and investing millions more as we speak, not to mention plenty of money in the bank.... Please forgive my naivety and thanks for your imput  

Tax treatment is as follows; shares purchased and held within the SIP are purchased from your gross (pre tax) salary. If you sell/withdraw the shares before the 5 years you will be liable to pay tax on the purchases . Note that for some schemes if you sell/withdraw after 3 years but before 5 years you only have to pay income tax and hence still get the NI savings. Check your scheme documentations to understand the actual terms of your scheme as they do differ from company to company.
 

MartialArtMan

Thanks for the input guys, really appreciate it! 
So in hindsight I'm thinking that perhaps it's not best to place all my eggs in one basket as I guess as per the example above you just never know what the future holds. I'm very fortunate as the company I work for actually just gives us shares rather than having to buy in so over the years these will accumulate to a reasonable amount of money. I'm just trying to get my act together now that my girls are no longer dependent and I have disposable income. At the moment I am putting savings into a Moneybox S&S ISA (this is a  minimal amount maybe £30 - £50 pm) and into Premium Bonds (I have put £6k into them so far this year). I've also upped my pension contributions at work to 10% plus their 6.66% contribution and increased my mortgage payments by an extra £100 per month....At 44 hardly any pension and still another 20 years on my mortgage I am getting a little concerned about my retirement .

Sailtheworld

Just a thought. You're 100% reliant on your employer for your income. With little in the way of pension provision at age 44 you're also very reliant on their contribution towards your retirement income too. And, just for good measure, it looks like most of your investments are in your employer's shares.

It's good you have such confidence in your employer because that's some concentration of risk.

MartialArtMan

Sailtheworld said:

Just a thought. You're 100% reliant on your employer for your income. With little in the way of pension provision at age 44 you're also very reliant on their contribution towards your retirement income too. And, just for good measure, it looks like most of your investments are in your employer's shares.

It's good you have such confidence in your employer because that's some concentration of risk.

If you have a sound strategy for securing a sound future I'm all ears, just doing the best I can....