All Employee Share Ownership Scheme

All Employee Share Ownership Scheme

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smithyithy

Original Poster:

7,192 posts

117 months

Monday 3rd August 2015
quotequote all
Morning all.

The company I work(ed) for has recently been acquired by another, and as such our new employer has offered us access to their AESOP.

Now, I'm a complete newbie to any kind of shares / stock / investment, but I do think it's time I start doing something with my money so this does interest me.

To be honest I don't feel that we've been given enough information about this by the employer, but the keys facts are:

  • We pay monthly out of pre-tax salary.
  • Up to 10% of our monthly - min. £10/m, max. £125/m.
  • For every 2 Partnership Shares we buy, they will give us 1 Matching Share.
  • "You will pay no income tax or NICs when you remove the shares from the Trust provided they have been in the AESOP for at least five years."
  • "Unless you leave (the employer), you must hold your Matching Shares for 3 years before they can be sold. Matching Shares must be held for 5 years before they can be sold directly from the plan without being subject to to income tax and National Insurance. If you have a query regarding Capital Gains Tax you should seek independent financial advice."
That's really all the information we have..

So before going any further I just need some independent advice / information. Some info I probably need to get from my employer, I realise.

CGT - form what I can gather from HMRC, this only applies to £50k+ which obviously won't be applicable here, right?

Share prices - How are shares priced? A quick Google says '1,432' - Is that £14.32? So eg. £50/month would buy 3.5 shares/month at the current rate?

I understand the part about holding them for 5 years before selling tax-free, but another query is the part about leaving the employer. As this is an AESOP, if I leave I'll no longer be an employee - is this likely to mean that I'll still be able to hold / sell my shares, but won't be able to buy any pre-tax / get the 2:1 Matching Shares?

Also, we're in a sector where company acquisitions aren't too rare, and contract changes mean we can change employer through TUPE every 4-5 years. Any idea whether an acquisition or TUPE transfer would count as 'leaving the employer' and thus allow us to sell the Matching Shares before the 3 year period?

Any advice or information that you guys can offer would be great, as I say I've never bought into anything like this before but without any real savings elsewhere, I think for a 5-year investment period it may be worth a shot.

Cheers.

Edited by smithyithy on Monday 3rd August 08:58

Ozzie Osmond

21,189 posts

245 months

Monday 3rd August 2015
quotequote all
Basically you are being offered a savings contract where you can't lose. Even better than that, the shares you are being offered may increase in value so you can make a tax free capital gain on those as well. In other words, you can't lose and might do very nicely!

Your employer will have a booklet or website with the full details. You need to look at that. Or ask the HR people.

Then just do it, saving as much as you can reasonably afford each month. It's a win/win.

Countdown

39,690 posts

195 months

Monday 3rd August 2015
quotequote all
Are you sure the money is taken out of your salary PRE-tax?

My understanding is that it is usually post tax.

Either way they are very good and I've always maxed my contributions.

Countdown

39,690 posts

195 months

Monday 3rd August 2015
quotequote all
Btw the share price is set at the start of the scheme. So, if we say that the share price is £14.32 today, THAT is the price you will be able to buy them in X years time. Obviously if share prices have fallen you won't buy ANY shares, you'll just ask for your money back. However if share price has risen you can buy them at the lower price and then sell them at the higher price when the lock in period has expired.

Parsnip

3,122 posts

187 months

Monday 3rd August 2015
quotequote all
Countdown said:
Are you sure the money is taken out of your salary PRE-tax?

My understanding is that it is usually post tax.

Either way they are very good and I've always maxed my contributions.
The OH is part of a share scheme that sounds quite similar to this - the payment is taken out pre tax and NI, but they seem to have the same 5 year statement in there - it doesn't quite make sense to me.

From reading it, it seems like a way to take some 40% taxed money out and then 5 years later, it comes out tax free, but surely this isn't right?

Countdown

39,690 posts

195 months

Monday 3rd August 2015
quotequote all
Parsnip said:
The OH is part of a share scheme that sounds quite similar to this - the payment is taken out pre tax and NI, but they seem to have the same 5 year statement in there - it doesn't quite make sense to me.

From reading it, it seems like a way to take some 40% taxed money out and then 5 years later, it comes out tax free, but surely this isn't right?
Yes that's my point - i don't think it can be tax free both "going in" and "coming out". My eldest was working part time in Asda and she had to juggle her personal allowance to make sure she had enough pay left AFTER tax to pay the ESOP contribution.

smithyithy

Original Poster:

7,192 posts

117 months

Monday 3rd August 2015
quotequote all
Right guys I've been sent a PDF brochure that details all the queries, tax implications etc.

Is there any way I can upload it somewhere for you guys to look over? If not I'll just screen cap each page (about 8) and post the images after lunch.

Ozzie Osmond

21,189 posts

245 months

Monday 3rd August 2015
quotequote all
It would be a better idea to read it first, and then ask specific questions. It should be pretty straightforward for you to understand.

Office_Monkey

1,967 posts

208 months

Monday 3rd August 2015
quotequote all
The pre-tax bit sounds about right - is a share match rather than the typical sharesave scheme. We have something similar at work, the 5 years is also in the wording. If you can afford to I would put in as much as you can as you'd get (unless the share price drops dramatically) a better return than elsewhere - I've heard of someone paying off the mortgage early by doing this rather than over-paying. I believe that if you sell your shares you'd have to pay NI & IT and lose any matching shares.

smithyithy

Original Poster:

7,192 posts

117 months

Monday 3rd August 2015
quotequote all
Ozzie Osmond said:
It would be a better idea to read it first, and then ask specific questions. It should be pretty straightforward for you to understand.
I have and it is smile still some uncertainties.. I just need to consider any pit falls really, like I said I'm totally new to this so there may be things I'm not considering that aren't detailed in the information provided.
















DavidJJ

192 posts

155 months

Monday 3rd August 2015
quotequote all
Some of the posters above are getting their All Employee Share Schemes mixed up. The "savings contract/you can't lose/price set at the start/post-tax deductions" gubbins is referring to SAYE - Sharesave.

Which this is not - like you say, its a AESOP (more usually known these days as a SIP (Share Incentive Plan). There are three primary differences with your AESOP;

1) deductions are PRE-tax/nic deductions
2) Those deductions are being used to purchase actual shares (rather than an option to buy shares which is what a Sharesave is) called "partnership shares," monthly usually.
3) the partnership shares are matched at a set ratio with Matching shares that can be forfeit under certain conditions (most obviously, leaving by resignation)

(there are far more differences but these are the key things)

So, taking that together you have;

a) depending on your tax rate you are making an immediate tax saving on your deductions because the deductions come out before tax is taken - just like a pension contribution. Hurrah!
b) your employer is given you extra shares for free (hurrah!) albeit with some strings attached
c) you are investing in shares. THE PRICE OF SHARES CAN FALL AS WELL AS RISE!

What I love about SIP and points 1 & 2 is that, when you think about it, the share price would have to fall massively before you actually take a hit. In fact, if the share price never even changes (up or down) and you stayed in the plan, once the shares had been in there long enough you are already ahead because your deduction has not only been very tax efficient, it has also been matched with additional shares.

You need to decide of course based on your own appetite to risk, how much you can afford to save, and of course how long you plan to stay there, but it's potentially pretty appealing.

If you sell your shares from within the plan, i.e. at some point you instruct the administrator/trustee to sell for you, there is no CGT. If you left the SIP and held the shares in your own name (i.e. in a share certificate) and subsequently sold then, you could have CGT liability but there is an annual exemption (use Google to find out more).



Edited by DavidJJ on Monday 3rd August 21:31

smithyithy

Original Poster:

7,192 posts

117 months

Monday 3rd August 2015
quotequote all
DavidJJ said:
Some of the posters above are getting their All Employee Share Schemes mixed up. The "savings contract/you can't lose/price set at the start/post-tax deductions" gubbins is referring to SAYE - Sharesave.

Which this is not - like you say, its a AESOP (more usually known these days as a SIP (Share Incentive Plan). There are three primary differences with your AESOP;

1) deductions are PRE-tax/nic deductions
2) Those deductions are being used to purchase actual shares (rather than an option to buy shares which is what a Sharesave is) called "partnership shares," monthly usually.
3) the partnership shares are matched at a set ratio with Matching shares that can be forfeit under certain conditions (most obviously, leaving by resignation)

(there are far more differences but these are the key things)

So, taking that together you have;

a) depending on your tax rate you are making an immediate tax saving on your deductions because the deductions come out before tax is taken - just like a pension contribution. Hurrah!
b) your employer is given you extra shares for free (hurrah!) albeit with some strings attached
c) you are investing in shares. THE PRICE OF SHARES CAN FALL AS WELL AS RISE!

What I love about SIP and points 1 & 2 is that, when you think about it, the share price would have to fall massively before you actually take a hit. In fact, if the share price never even changes (up or down) and you stayed in the plan, once the shares had been in there long enough you are already ahead because your deduction has not only been very tax efficient, it has also been matched with additional shares.

You need to decide of course based on your own appetite to risk, how much you can afford to save, and of course how long you plan to stay there, but it's potentially pretty appealing.

If you sell your shares from within the plan, i.e. at some point you instruct the administrator/trustee to sell for you, there is no CGT. If you left the SIP and held the shares in your own name (i.e. in a share certificate) and subsequently sold then, you could have CGT liability but there is an annual exemption (use Google to find out more).



Edited by DavidJJ on Monday 3rd August 21:31
That's really helpful David, thanks.

I think I'll go for it then, it does seem a very good investment opportunity and I think as long as I stick with the employer I can't really lose out.

DavidJJ

192 posts

155 months

Monday 3rd August 2015
quotequote all
My pleasure, glad I could help. I am certainly maxed out on the one my employer offers and the match is no-where near as generous.

My note of caution would be of course that share prices can go down as well as up;

https://en.wikipedia.org/wiki/File:Northern_Rock_s...

So do always consider your appetite to risk.

smithyithy

Original Poster:

7,192 posts

117 months

Monday 3rd August 2015
quotequote all
For sure. Although I think we carry less risk than something in the financial market. Heck, there's no point keeping it 'secret' - it's Kier Group.

https://en.wikipedia.org/wiki/Kier_Group

We originally worked for Amey, who then lost the commission, so we all TUPE'd to EM Highways (a company owned by Mouchel) just over a year ago.

Recently, Kier has completely bought out Mouchel and its companies, so we now work for Kier Group who seem to be doing very well in this sector.

JungleJim

2,336 posts

211 months

Wednesday 5th August 2015
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Just to add to what has already been said, I'd be all in on this scheme (and I am, in my own companies one).

Depending on whether you are a a 20% or 40% tax payer you will lose either £100 or £75 from your monthly take home, and in return you will receive £375 worth of shares.

You can sell your bought shares, 'partnership' shares anytime you like, you just need to pay the income tax.

Keep in the system and they're tax free. Oh, and you'll get dividend on them too from day one.

The shares would have to fall an awful long way before you lose money on it.

Do it. Or kick yourself.


smithyithy

Original Poster:

7,192 posts

117 months

Wednesday 5th August 2015
quotequote all
JungleJim said:
Just to add to what has already been said, I'd be all in on this scheme (and I am, in my own companies one).

Depending on whether you are a a 20% or 40% tax payer you will lose either £100 or £75 from your monthly take home, and in return you will receive £375 worth of shares.

You can sell your bought shares, 'partnership' shares anytime you like, you just need to pay the income tax.

Keep in the system and they're tax free. Oh, and you'll get dividend on them too from day one.

The shares would have to fall an awful long way before you lose money on it.

Do it. Or kick yourself.

Sounds pretty damn good! How do the dividends work exactly? That's something I've seen mentioned but not explained in the brochure..

CarlosFandango11

1,914 posts

185 months

Wednesday 5th August 2015
quotequote all
smithyithy said:
That's really helpful David, thanks.

I think I'll go for it then, it does seem a very good investment opportunity and I think as long as I stick with the employer I can't really lose out.
It's a very good opportunity which I would jump at and contribute as much as possible into provided I wasn't thinking about resigning in the near future. And as someone else above mentioned you would receive any dividends that the shares pay.

However, it is possible for you to lose out - if the share price falls significantly then the value of your shares will also fall. And you at have a significant investment in the company that you work for [and who might run a DB pension scheme for you?] which could a concern if things went very pear-shaped for your employer...

CarlosFandango11

1,914 posts

185 months

Wednesday 5th August 2015
quotequote all
smithyithy said:
That's really helpful David, thanks.

I think I'll go for it then, it does seem a very good investment opportunity and I think as long as I stick with the employer I can't really lose out.
It's a very good opportunity which I would jump at and contribute as much as possible into provided I wasn't thinking about resigning in the near future. And as someone else above mentioned you would receive any dividends that the shares pay.

However, it is possible for you to lose out - if the share price falls significantly then the value of your shares will also fall. And you at have a significant investment in the company that you work for [and who might run a DB pension scheme for you?] which could a concern if things went very pear-shaped for your employer...

plfrench

2,297 posts

267 months

Wednesday 5th August 2015
quotequote all
You'd be bonkers not to! I've been doing a very similar thing where I work since 2006 and it's building up a nice little nest egg. I'm in the same industry as the OP and although the share price is still only half what it was pre-recession, I'm still up quite significantly overall. I only get 1 free for every 4 I buy too, so the Kier offer sounds great!

lukefreeman

1,492 posts

174 months

Thursday 6th August 2015
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Can't echo sentiments above enough.

Max it if you can afford. You cant' lose. (Well, go on you would only have capital you put in if you choose not to excersize right to buy shares at teh end and inflation went up, but YOLO)