Company Share Save

Sumselkb

Hello, I currently pay into my company share save. My annual salary is £13,000.

By December 2027 when it matures I will have around 15,000 shares. The company share price will change over the next five years so I cannot predict the exact price but hopefully the shares will be worth somewhere around between £40,000 to £50,000

When I find myself at December 2027 and I have all of these shares what would be my best option do you think?

Option 1: Keep the shares and collect dividends? I will hopefully work for my company for at least another 15 years so I could just keep the shares and take out another share save plan if they offer one. I know that dividends are not guaranteed every year but there is a chance I could get roughly between 8p to 12p per share each year and with my annual salary only being £13,000 I wouldn't have to pay a lot of tax, is it around 8% or something?

Option 2: Take all the money and transfer it to my bank account. How much tax would I pay? Then look to transfer £20,000 to a cash ISA, then the following year do the same again and basically have the money in a cash isa.

Option 3: Take all the money and transfer it to my bank account. How much tax would I pay? Then look at putting the money into a high interest savings account. Can you have more than one savings account?

Option 4: Something else that I haven't thought of.

Thanks.

md258

I wouldn't do option 1, as if something happened to the company, you could find that you lose your job and your shares become worthless. Probably an unlikely scenario, but in my opinion it makes sense to spread the risk. Given your income, I'm assuming that your shares would make up a significant proportion  of your wealth.

For option 2/3, I believe that you may have to pay capital gains tax when you sell them, depending on their value. As you get an allowance, I would suggest selling as many as you can to avoid paying CGT, and make it so that you don't have too much to fill your ISA each year.

Another option (although with your income it may not be possible) would be to sell some shares each year and use salary sacrifice to put more into your pension- ie sell £5k shares, earn £8k, and put £6k into your pension, with the extra £1k coming from the tax relief (+ NI).

For option 3, you can have multiple savings accounts, and if you don't have a plan for the money, it may make sense to put some in 1yr fixed accounts, some in a 2yr etc and then you will always have some money becoming available in the next year should you need it.

Sumselkb

md258 said:

I wouldn't do option 1, as if something happened to the company, you could find that you lose your job and your shares become worthless. Probably an unlikely scenario, but in my opinion it makes sense to spread the risk. Given your income, I'm assuming that your shares would make up a significant proportion  of your wealth.

For option 2/3, I believe that you may have to pay capital gains tax when you sell them, depending on their value. As you get an allowance, I would suggest selling as many as you can to avoid paying CGT, and make it so that you don't have too much to fill your ISA each year.

Another option (although with your income it may not be possible) would be to sell some shares each year and use salary sacrifice to put more into your pension- ie sell £5k shares, earn £8k, and put £6k into your pension, with the extra £1k coming from the tax relief (+ NI).

For option 3, you can have multiple savings accounts, and if you don't have a plan for the money, it may make sense to put some in 1yr fixed accounts, some in a 2yr etc and then you will always have some money becoming available in the next year should you need it.

Option 1 does feel risky because if, like you said, my shares drop away down in value then they would become worthless. The shares would be pretty much all of my wealth.

Am I right in thinking that if I transfer £20,000 to an ISA rather than my bank account then I don't have to pay any CGT? Can I transfer shares to a cash isa or does it have to be a stocks and shares isa? 

Or, when it matures, if I wait for 5 years before transferring to my bank account then I don't pay any CGT?

I think transferring to an ISA makes the most sense but it doesn't pay much interest?

So lets say its December 2027 and I transfer £20,000 to an ISA. Do I have to then wait a year until I can then transfer the £20,000 from my ISA to my bank account and then into separate savings accounts? Or would I be better just leaving it in the ISA?

Perksy5

So my sharesave scheme allows us to transfer the shares on maturity directly into a S&S ISA at any time after.
I actually have no idea how this process works and I'm looking to try this myself as I have a significant sharesave maturing end of this year, with the reduction in CGT I'm banking on the transfer directly into S&S ISA being an option. 
Again I have no idea how this works if they only transfer the equivalent value of shares worth of 20k across or if they can all go across? Hopefully someone who has done this before could share their experience.

Bobajobbob

If transferring into an ISA wrapper, which I absolutely would advise, make sure that the ISA provider supports a true transfer rather than a sale and rebuy. If not a transfer you may incur the CGT that you are planning to avoid.

When it comes to keeping or selling your shares it is impossible to give advice on your particular circumstance, the future value of your company and the broader global economic environment.

What I can share is my own experience in my old company where I subscribed to a number of share save schemes over a number of years with each scheme offered at a 10% discount to the share price. At the time it was a no brainer as interest rates were effectively zero so any spare cash I had was not gaining interest in a bank account. My company was also growing over the same period and the share price of the company increased significantly. So for me it was better not to sell immediately and by holding the stock I made significant gains over a number of years. Again only my particular circumstance but by holding the stock I could liquidate if I needed the cash but could also do this carefully to avoid CGT. Of course if you need the money or want to diversify your investments then it makes sense to sell and invest in a broader fund or stocks.

Brie

Check the T&Cs of the sharesave scheme as that should explain what might be payable.  

Going by the one that I have been in with my company I have never paid CGT any time I've exercised the share option - which I've done more than once over the years.  Because I've let the schemes go to maturity there's no income tax or NI to pay as well.  

Personally I'd be taking the "buy shares and sell immediately" option if the share price is good.  Normally I've done this if the price at option date is higher than the guaranteed buy price.  So if the scheme said I could buy at £1 at 1st Feb 23 but the share price that day was £1.50 I would do the buy and sell immediately option.  If the price on the day was £0.95 I would consider if I should just take the money out.

I've just take shares once.  I was holding out as the price was rising and then it got to a year back and the Ukraine happened and the price dropped by nearly 50% over night.  I'm still waiting for it to rise high enough to sell which means I'm now checking the price a few times a day to try to time things right.  Time consuming but hopefully profitable at some point.

artyboy

Brie said:

Check the T&Cs of the sharesave scheme as that should explain what might be payable.  

Going by the one that I have been in with my company I have never paid CGT any time I've exercised the share option - which I've done more than once over the years.  Because I've let the schemes go to maturity there's no income tax or NI to pay as well.  

Personally I'd be taking the "buy shares and sell immediately" option if the share price is good.  Normally I've done this if the price at option date is higher than the guaranteed buy price.  So if the scheme said I could buy at £1 at 1st Feb 23 but the share price that day was £1.50 I would do the buy and sell immediately option.  If the price on the day was £0.95 I would consider if I should just take the money out.

I've just take shares once.  I was holding out as the price was rising and then it got to a year back and the Ukraine happened and the price dropped by nearly 50% over night.  I'm still waiting for it to rise high enough to sell which means I'm now checking the price a few times a day to try to time things right.  Time consuming but hopefully profitable at some point.

On a Sharesave / SAYE scheme, there would never be an income tax liability at maturity, only ever (potentially) CGT. This is the scheme where you can put in up to £500/month for either 3 or 5 years, and it's taken out of your already tax/NI deducted salary.

Are you maybe thinking of Share Incentive Plan (SIP), where you are allowed to invest up to £150/month out of pretax income, and as long as you hold the shares for 5 years, there is no income tax liability when you sell?

(I am invested in both schemes!)

But the ISA transfer is a definite yes - it's something specific to these schemes that allows you to use your £20k allowance for the year to transfer in and avoid CGT - which is different from the more common 'bed and ISA' process that still has a CGT liability on the way in.

If it helps the OP at all, I have a Sharesave scheme maturing this November - based on the share price today, it will result in a £23k capital gain above the £18k investment. I'll be transferring £20k into an ISA (then selling the shares and buying a less risky tracker fund). I'll sell half of the remainder, and then transfer the other half to Mrs Arty to sell. That should mitigate virtually all CGT liability, even with the reduced allowance for 2023/2024.

qbs

Only one sensible answer.

Ask the same question in November 2027.

Sumselkb

I have been reading the share save rules and my understanding from reading it is that if I hold the shares for at least 5 years and keep working for the company then I won't have to pay Capital Gains Tax on any profit made.

So if I decide to keep the shares on December 2027 and have them until December 2032 then I don't have to pay CGT any more?

Things can change a lot in 5 years, maybe the CGT will be £0 or maybe it will be £20,000. 

I think transferring to an ISA is still the best option as I don't want to have all my money in shares in case they go away down in value.

I will need to read more about the plan rules and see about the transferring to an ISA and making sure its a true transfer rather than a sale and rebuy.

Thanks for all of the help.