A brief outline of the benefits and requirements for SAYE plans.
What is a SAYE plan?
A ‘save as you earn’ option plan is a tax advantaged share plan, providing eligible employees with the right, but not the obligation to buy shares at a fixed price in the future, linked to three or five year savings contracts.
The price at which options are granted over company shares can be discounted by up to 20% of the market value of the shares at the date of grant. On exercising the option, the accumulated savings are used to fund the exercise price of the option to acquire shares. The employee is not obliged to exercise the option so, alternatively, they can simply withdraw their savings and the option will lapse.
The Savings Plan
Employees can save up to £500 a month under the scheme.
SAYE options must be granted over ordinary shares. They must be fully paid up and not redeemable by the company.
Who can participate in a SAYE plan?
The SAYE Plan must be offered to all employees with five years’ service or more and may be offered to employees with less service. It’s only available to UK tax residents.
All participants must be entitled to participate in the plan on similar terms as to option exercise price and conditions of exercise.
What are the tax advantages?
The interest and any bonus at the end of the scheme is tax-free. The recipient will not pay Income Tax or National Insurance on the difference between what you pay for the shares and what they’re worth.
The recipient may have to pay Capital Gains Tax if they sell the shares.
The recipient will not pay Capital Gains Tax if they transfer the shares:
- to an Individual Savings Account (ISA) within 90 days of the scheme ending
- to a pension, directly from the scheme when it ends
If you do not transfer your shares to a pension immediately when the scheme ends, you can still transfer them up to 90 days later. However, you may have to pay Capital Gains Tax if they go up in value between when you buy them and when you transfer them.
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