Tax Advantages of Employee Share Schemes


Do you work for an employer gives you shares in a company or gives you the option to buy them cheaply? This post explains different types on Employee Share Schemes and the tax implications of participating.

There are a number of tax advantages that could apply to you if your employer offers you company shares. The advantages that are available depend on the scheme that is in place. The following share schemes have tax advantages:

Share Incentive Plans

There are four ways in which shares can be received through a Share Incentive Plan. These include:

Free Shares – An employer can provide an employee with up to £3,600 of free shares in any tax year.

Partnership Shares – Shares can be purchased out of your salary before tax deductions, at a limit of the lowest of either £1,800 or 10% of your income.

Matching Shares – Employers can offer employees up to 2 free matching shares per each partnership share they have purchased.

Dividend Shares – More shares may be available through the dividends received from free shares, partnership shares and matching shares.

One of the advantages of shares received through a Share Incentive Plan is that Income Tax and National Insurance is not payable on their value if you keep them in the plan for 5 years. Capital Gains Tax is also not payable if you keep these shares in the plan until you sell them.

Save As You Earn

Save As You Earn is a savings type of share scheme. Shares are purchased with savings and up to £500 per month can be saved using this scheme. Your savings contract will be for either 3 or 5 years; at the end of this period you can then purchase shares for a fixed price.

Save As You Earn is advantageous as the interest received (and any bonus) at the end of the scheme is not liable for taxation. Furthermore, you are not required to pay tax on any amount between that what you paid for the shares and what they are now worth.

Another advantage of this scheme is that if you place them in an ISA or in a pension (as soon as you purchase them) you will not have to pay Capital Gains Tax if you come to sell them.

Company Share Option Plan

A Company Share Option Plan gives you the opportunity to purchase up to £30,000 worth of shares at a fixed price. The difference between what you pay for the shares and what they’re worth is not liable for Income Tax or National Insurance.

Enterprise Management Incentives

Certain companies can offer employees Enterprise Management Incentives. Through this share scheme, shares can be purchased up to the value of £250,000 without tax being payable on the difference between the amount paid for the shares and what they’re worth.

Employee Shareholders

If you’re an employee shareholder, you won’t usually pay Income Tax or National Insurance on the first £2,000 worth of shares of this type. Furthermore, you will not have to pay Capital Gains Tax on these shares (up to the value of £50,000 when you purchased them) if you sell them.

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