Employee Share Incentive Plan... Feeling ripped off, is this Right??

1Amigo

If the share price had fallen you would have benefited from paying less tax

steampowered

Let me get this straight: 

- The Op paid £1,800 for some shares 
- The shares are now worth £8,100
- The Op has to pay tax of £2,100 - leaving them with a £4,200 profit after tax

I think it is a bit rich that the Op thinks this is a "rip-off". The shares were bought from pre-tax income as a benefit in kind. Of course gains achieved from your pre-tax income should be taxed.

Why should you get to make a tax free profit on shares bought using money which has never been taxed? 

If you want to buy shares without paying tax on the profits, you could simply buy the shares in a stocks & shares ISA. Gains on shares purchased within a S&S ISA are tax free. Of course, the money you put into an ISA comes from your post-tax wage. You don't get to have your cake and eat it.

ilselm

I’m sure not many like paying tax but them are the rules and seems you’ve done quite well from the share price increase within the SIP scheme even though you left before the 3/5 year period to get the full benefits. If you hadn’t have joined the SIP, would you have bought shares in your employer from post-tax income? 

I wouldn’t and I contribute towards my employer’s scheme (max £150pm; BOGOF employer match) and certainly don’t feel ripped off even though share price has been quite volatile over past 8 years. Have now started to cash out the tax free contribution, match and dividend shares on annual basis to avoid the slight concentration risk there. There will likely be a time, unless I’m designated as a ‘good leaver’, that I would lose the match and pay the tax on the contribution shares and the 3-5 yo match shares when I leave that company but that’s how it goes. 

underground99

jacko74 said:

good to know that what has occurred in this case is at least technically ''correct'' if to my mind still not morally or ethically fair.

The company is allowed to offer a tax-advantaged scheme to help encourage employees to stay at a company for a long period of time over which they contribute to its success and share in the rewards of that success as a part-owner of the company.

From the perspective of the rest of the UK taxpayers who subsidise any tax breaks given to individuals under such a scheme:

If you had been allowed to tell your employer that you wanted to be paid in shares instead of cash, and the shares ended up being worth several times as much as the cash salary you gave up... and then you looked at the terms of the scheme and decided you weren't going to bother sticking around for the 3-5 years plus, to obtain the tax breaks that HMRC let them offer to incentivise long service, and you were instead just going to walk away and take your £8000 of shares... and then the company and HMRC said "ah well, he didn't qualify for the tax breaks offered by the scheme rules but we'll let him just keep those £8000 of assets anyway and tax him as if he taken £1800 of cash..."
... you could imagine that many other taxpayers subsidising your tax break, who either (a) aren't fortunate enough to be offered tax-efficient employer share schemes or (b) do get offered them and follow the rules of them rather than jumping ship and still demanding the tax break... would say something along the lines of:
 "your demand to pay tax on only £1800 of income when you've received £8000 of value and didn't meet the special conditions to get any tax break on it (due to deciding it would be better for your personal circumstances to leave the employer rather than wait it out for a tax break) does not appear morally or ethically fair. You do not deserve a tax break because you signed up to T&C's that offered a tax advantage after 3 years but you are giving up on the scheme after only 1.5 years. You know you don't qualify, so stop complaining."

might have been a bit fairer if there was at least an option where even though I'm leaving the employer the shares can remain untouched in the scheme administrators account for the full period instead of me being forced to remove them and pay this stealth CGT.

There is no stealth CGT. You are paying income tax and national insurance on the value of what the employer gave you.

You had requested that they put shares into a scheme for you each month rather than cash. They didn't charge you any tax on the shares yet because if you followed the rules of the scheme and give them the good long service that they and HMRC want to incentivise, you will avoid tax. But you now want to leave, as that suits you better than staying in the job just to keep the tax benefit. So, they value the shares that you want to leave with, and charge you tax and NI on them. The £000s of shares that you are leaving with, are the rewards of working for them. You don't qualify for those rewards of employment to be tax free. So, pay tax on them.

You are suggesting that you should be allowed to say to the employer, "hey, I know you and HMRC offered this scheme to incentivise us to stay, but I don't wanna. Can't you just pretend I am still giving you at least three years of long service, hold onto my shares and I'll come and pick them up at the end of that three years of service that I'm not going to serve because I've gone elsewhere, and we'll just tell HMRC I did my full 3-year stint anyway? Then I'll save some tax without actually having to give you the full amount of service that the HMRC said I need to give you to qualify for this tax incentive. That would be great, cheers."

"No."

"Oh come on, it should at least be an option for me to jack the job in but still keep the tax advantage of a long term employee incentive scheme from the employer I'm no longer working for!?"

"No it shouldn't."

kidmugsy

Barny1979 said:

kidmugsy said:

It's my observation over the years that when a poster objects to being "ripped off" he almost always has a feeble case.

They not he? ;-)

Nope, only one person posted.

MovingForwards

kidmugsy said:

Barny1979 said:

kidmugsy said:

It's my observation over the years that when a poster objects to being "ripped off" he almost always has a feeble case.

They not he? ;-)

Nope, only one person posted.

'they' as in don't know if OP is male, female or other choice, at a guess.

OP you got more money back than if you didn't buy the shares, be grateful for what you got for the reasons people have explained.

moneysavinghero

kidmugsy said:

Barny1979 said:

kidmugsy said:

It's my observation over the years that when a poster objects to being "ripped off" he almost always has a feeble case.

They not he? ;-)

Nope, only one person posted.

But you were referring to a group of posters posting individual posts over a number of years. So 'they' would have been the correct term.

Fromdownwest

I think people are missing the issue with comparing this to a post pay purchase.
If the OP purchased shares post income and the shares fell in value, then they would have a reduced value.
If the OP purchase the shares VIA a SAYE and wanted to cash out when they were under value, then the OP woudl have their investmetn returned.
So, one way to look at the 'rip off' is you are buying a guarantee

masonic

Fromdownwest said:

So, one way to look at the 'rip off' is you are buying a guarantee

Buying a guarantee at a negative cost, since if the shares don't fall in value you are still better off than if you purchased them post income (having escaped paying NI).