Works Sharesave and Capital gains tax?

Merlin139

My other half opened a works Sharesave scheme last January and started paying in the maximum allowed of £500 per month. She has another 25 months to pay until it finishes. The price she got the shares at gave her around 21,000 shares and the price they are now gives them an indicative value of around 53K 

Yes she does understand the price can go back down or go up and until it matures the value is pretty meaningless. Providing she stays with the company and pays in each month she will have her original 18K it the price ends up lower than when she started. 

Because of the possible gains and her thinking the price may well double from where it is now, she is making a list of what she would like to do with her possible 6 figure pile of money, but is getting worried about TAX. She is the first to admit that she knows very little about money and it was actually me that advised her to take out the scheme when I saw how low the share price had dropped.

The shares are only in the Sharesave scheme not in any ISA. What are the future possible Tax implications? What can she do to reduce any liabilities? Any advice or where to find the answer would be a great help. Have tried looking but most of what I read is mumbo jumbo.

Brie

Interesting....

My sharesave scheme states this:

You may be liable for capital gains tax on the difference between the sale price of a share and the option price paid per share, when you sell your shares. The 2021-22annual exempt amount for capital gains is £12,300. This means that if your gain on all shares sold (and any other disposals made that attract capital gains tax) in the tax year is less than £12,300, no capital gains tax will be payable. If the gain is above the annual exempt amount, you will have to pay capital gains tax on the excess.

So she might be looking at a capital gains figure of £40k at the current rate.

She may decide that when January and a new Sharesave offer comes around that she might be able to cancel a portion of what she's already doing and set it up for a new year thus allowing her to split the gains over 2 (or potentially more) years.

I have mine set up so I have put in a fraction of the allowed amount and added to that each year so that a plan is maturing every year.  Never had enough in any year to pay capital gains so have never bothered to find out how to submit an info to HMRC about it.

eskbanker

Merlin139 said:

The shares are only in the Sharesave scheme not in any ISA. What are the future possible Tax implications? What can she do to reduce any liabilities? Any advice or where to find the answer would be a great help. Have tried looking but most of what I read is mumbo jumbo.

https://www.gov.uk/tax-employee-share-schemes/save-as-you-earn-saye seems a fairly clear and simple explanation, i.e. there's a limited window within which to get them into a tax wrapper on maturity but otherwise gains would be subject to CGT.  If not using a wrapper at that stage, the usual CGT mitigations would apply, e.g. stage sales over multiple tax years, consider gifting to a spouse, offset against losses, etc....

Brie

more info from my work scheme

For UK Tax Residents only. You could choose to directly transfer up to £20,000(the annual ISA limit for 2021-22) worth of shares into a stocks and shares ISA and not have to pay capital gains tax on any gain made when you come to sell your shares. The transfer must be completed within 90 days of your exercise date. You can either open a new ISA or top up an existing ISA, subject to the limit of £20,000and your existing provider’s terms and conditions. You should exercise and transfer allof your shares to your ISA provider.

Obviously some of this will change as the years tick along....

Merlin139

Thanks for the replies.

From what you have said and by reading lots of info on HMRC website I think that the following would make sense. Never saw it as doing more than one thing. Makes it clearer now.

If they mature and are worth 118K

Option 1 Sell them all all she would be liable for Tax on 100K profit part of which would be paid at 20% and the rest at 40%

Option 2 Sell 1/8th and use CGT allowance, put 20K worth of shares into an ISA, Give 1/8th to me to sell to use my CGT allowance. Do this before start of the next tax year and then do the same at start of new tax year. Repeating the following tax year. That covers more than 118k 

Obviously the figures would have to be played about with but I think I get the idea.

I think I created the problem by being greedy and saying to use the full £500 at such a low price. She was paying £90 per month from the previous year but it made more sense to cancel that one and invest the extra £90 per month at a much lower price.

eskbanker

Merlin139 said:

I think I created the problem by being greedy and saying to use the full £500 at such a low price.

Turning £18K into a pre-tax £118K (albeit notional at this stage) can be described as many things, but 'problem' is unlikely to be one of them!  What would she have done with that £18K if not paying into this scheme, and what would have been expected from it after three years?

Merlin139

eskbanker said:

Merlin139 said:

I think I created the problem by being greedy and saying to use the full £500 at such a low price.

Turning £18K into a pre-tax £118K (albeit notional at this stage) can be described as many things, but 'problem' is unlikely to be one of them!  What would she have done with that £18K if not paying into this scheme, and what would have been expected from it after three years?

Problem only from a Tax point of view but if the money had not been put into the scheme then it would be being put into an ISA and earning very little interest. A lot can happen in the next 2 years but at least now we have an answer to the question of how we can deal with a possible Tax bill.

Edi81

You haven’t created a problem at all. 

You’ve taken advantage of what could potentially be a fantastic gain. 

If you have to pay tax then so be it - you’re still better off overall.