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Employee share schemes – a worthwhile incentive?

We take a look at two of the main employee share schemes after recent research revealed that £200 million worth of free shares were given out to employees last year:

  Share incentive plan (SIP) Save as you earn (SAYE) share option
What is it? A plan that offers tax and national insurance advantages when employees buy or are given shares in the company they work for. A scheme that allows employees to save towards a ‘share option’ to buy shares at a discounted price of up to 20 per cent.
What are the tax advantages? You will not have to pay income tax or NICs on the value of free or matching shares awarded to you. The longer you keep the shares in the plan, the less tax and NICs you will pay when you finally take them out. If you keep the shares in the plan until you sell you will not have to pay capital gains tax. You do not have to pay income tax when you receive your share option or when you buy shares. You can also transfer any shares into a stocks and shares ISA.
How does it work? SIPs keep your shares in a trust for you until you either leave your job or decide to take the shares from the plan. The shares must be kept in the plan trust for a specified number of years to give you the full tax benefits. Employees agree to save a fixed amount (between £5 and £250) each month for a set period of time under a Save as You Earn savings contract. This money is used to buy shares. A bonus is also paid at the end of the scheme.
Who can take part? SIPs cannot be restricted to particular groups or individuals, but a company can set its own limit for the minimum time at the company, although it cannot be longer than 18 months. Any UK employee that has been working at the company for more than five years.
What are the restrictions? Plan shares must be held for at least three to five years. If they are taken out before this, NI and tax may have to be paid. There are also restrictions on the number of shares that can be purchased; this depends on the type of share. Shares come out of a plan as soon as you leave your job. If you decide to stop saving before you have completed your SAYE contract you will not normally be able to exercise your option to buy any shares. You must pay for the shares from the amounts saved in your savings contract.


We can advise on these and other employee share schemes. Please talk to us to find out more.