What to do with my shares?

Stegor

I have shares in Diageo from a previous job there. The value has more than halved from £40 in 2022 to £18 now. I am considering taking £5000 a year and placing it in to my workplace pension through salary sacrifice, which with tax relief would increase the value to £25 I believe. The other possibility would be to move it to a stocks and shares ISA. I am 55 and a higher rate tax payer working full time. I would like to reduce my hours/ semi-retire at 60 when my mortgage ends. Any thoughts on the best option, or whether I should just leave them and hope for them to improve would be appreciated. Thanks for reading.

NorthYorkie

Sorry, but I am confused! You seem to be saying that if you put £5,000 into your pension fund, the shares you hold will increase in value from £18 to £25. How? Is it worth it for only £7?
Perhaps you could clarify your post?

vacheron

Stegor said:

I have shares in Diageo from a previous job there. The value has more than halved from £40 in 2022 to £18 now. I am considering taking £5000 a year and placing it in to my workplace pension through salary sacrifice, which with tax relief would increase the value to £25 I believe. The other possibility would be to move it to a stocks and shares ISA. I am 55 and a higher rate tax payer working full time. I would like to reduce my hours/ semi-retire at 60 when my mortgage ends. Any thoughts on the best option, or whether I should just leave them and hope for them to improve would be appreciated. Thanks for reading.

The first decision to make is whether or not to sell. Someone told me once, if you didn't hold any of these shares today, would you buy them today based on their past and recent performance?
If the answer is no, their theory is that you should sell them. 

If you then decided to sell, you wouldn't be able to "place the £5000 into your salary via salary sacrifice"as it is not salary, however you would be able to use the sale proceeds to subsidise your reduction in income while you increased your salary sacrifice contributions.

Where are your shares currently held? (i.e. would they be subject to CGT if you sold them all)?

NorthYorkie said:

Sorry, but I am confused! You seem to be saying that if you put £5,000 into your pension fund, the shares you hold will increase in value from £18 to £25. How? Is it worth it for only £7?
Perhaps you could clarify your post?

I think the OP is referring to the higher rate uplift they would get by subsidising their income by selling their shares and putting their equivalent take home pay into their company pension scheme to benefit from the tax relief.

Baldytyke88

I had shares that were worth around £30, so with the cost of cashing them in, I left them. When they reached £90 in value, I cashed them in.

Stegor

Hi, sorry for the confusion. The £18 is the current share price, I currently have around £30k worth of shares at that price, which has dropped from the £60k I had in 2022. Yes, they are subject to CGT which is why I was looking at moving £5k a year into savings and then use this to offset the reduction in my pay from the salary sacrifice increase. As I pay higher rate tax, by doing this I believe I turn the £5k into around £7k in to my pension which is the equivalent of £25 per share.

vacheron

Stegor said:

Hi, sorry for the confusion. The £18 is the current share price, I currently have around £30k worth of shares at that price, which has dropped from the £60k I had in 2022. Yes, they are subject to CGT which is why I was looking at moving £5k a year into savings and then use this to offset the reduction in my pay from the salary sacrifice increase. As I pay higher rate tax, by doing this I believe I turn the £5k into around £7k in to my pension which is the equivalent of £25 per share.

It certainly will. 

If all of your sacrifice is from higher rate income, by sacrificing £5,000 in after tax savings you would recieve £8,333 into your pension, however you would also save a further £188 in NI savings making it exactly £8,500. 

If your employer is also nice (like mine is) and gives you 100% of their employer NI savings for any additional contributions you make, you would recieve a further £1,250 into your pension for a total of £9,750 in exchange for a £5,000 after tax sacrifice.

That would make your share analogy closer to £35 per share. 

.... and people wonder why I am putting so much into my pension!  

vacheron

You also need to ask yourself if you are confident that in a years time the share price won't have fallen by a further 18%, because if it does, it could be better to dump the lot now and take the GCT hit.

Jetstreamer

I'm a fellow Diageo shareholder (although not as invested as you!)  It hasn't been the best time to be a shareholder recently but the future share price forecasts are positive.  Long term I think the shares will bounce back and it is a good one to have in the portfolio as it balances out other shares I have that are likely to perform differently in various scenarios.  The dividend yield of 4.48% is also a nice earner while they recover.  Most analysts have them as a Buy or at least a Hold.  The consensus is not to sell.

But who knows!  It is purely a question of your attitude to risk.  And how would you feel if you sold and they recovered strongly vs how you would feel if they dropped further?  Diageo seems to perform well in times of crisis (maybe because everyone turns to drink!)  Could the next financial crisis be around the corner?

leosayer

You haven't said whether you want to keep the shares or whether £30k is a material amount of money to you.

How would you feel if the shares dropped to £15k or to £5k? Holding single company shares is generally a very risky approach to investing.

If it was me I'd sell the shares and take whatever tax hit there was. Then I'd look to reinvest the money into an investment that is more appropriate for my needs rather than one I just happened to have because I worked there.