Employer share schemes
Discussion
Just wondered how people use employee share schemes and what the best strategies are...
We have a fairly standard salary sacrifice scheme with the maximum contributions (£150/month) that is also topped up with shares by 20%. So just over £2k going in per year, which is only actually costing about £1k in lost income.
The shares have to be in the scheme for 5 years before you can sell them tax free, so just wondering how people play it?
Do you just leave them there as long as possible then take bigger chunks out when you want cash, so treat it like a savings account?
Or wait until the first set reaches 5 years then start selling them every month to give you a couple of hundred quid per month extra income?
Something else?
Thanks
We have a fairly standard salary sacrifice scheme with the maximum contributions (£150/month) that is also topped up with shares by 20%. So just over £2k going in per year, which is only actually costing about £1k in lost income.
The shares have to be in the scheme for 5 years before you can sell them tax free, so just wondering how people play it?
Do you just leave them there as long as possible then take bigger chunks out when you want cash, so treat it like a savings account?
Or wait until the first set reaches 5 years then start selling them every month to give you a couple of hundred quid per month extra income?
Something else?
Thanks
I'm in a similar position to you, but just coming up to the 5 year point.
My plan is to sell them off in chunks every year or two, as long as the share price seems ok (mine have tanked recently, so worth waiting for them to recover). This reduces the risk of a reasonable sum of money being tied up on a single company.
My scheme charges a fixed fee per transaction when selling, which works out as a non insignificant percentage of a monthly contribution, so not worth doing regularly IMO.
Interested in others opinions.
My plan is to sell them off in chunks every year or two, as long as the share price seems ok (mine have tanked recently, so worth waiting for them to recover). This reduces the risk of a reasonable sum of money being tied up on a single company.
My scheme charges a fixed fee per transaction when selling, which works out as a non insignificant percentage of a monthly contribution, so not worth doing regularly IMO.
Interested in others opinions.
IMO try to keep it as a "chunk" to do something worthwhile. Monthly cash just gets frittered away with little to show for it.
One possibility, if you're looking to the longer term, is to use it for payment into a pension plan. You'll get full tax relief at your highest rate, adding a further useful bonus to the "free money" advantages you've already had from the share scheme.
One possibility, if you're looking to the longer term, is to use it for payment into a pension plan. You'll get full tax relief at your highest rate, adding a further useful bonus to the "free money" advantages you've already had from the share scheme.
The Leaper said:
The dividends always pay for our holidays each year. The shares have significantly increased in value too, which is good except for the potential CGT.
Depending on your overall circumstances, you should consider using the annual tax free CGT allowance to chew through that CGT exposure. You can even buy back the same shares (after 30 days) if you want to - otherwise diversify into a broader income producing investment. Same return with a reduced concentration of risk.The Leaper said:
I was a member of my employers SSP for several years. I have not sold the shares. The dividends always pay for our holidays each year. The shares have significantly increased in value too, which is good except for the potential CGT.
R.
My understanding was that no tax is due as long as the shares were held for a minimum of 5yrs (dividend 3yrs)?R.
The Leaper said:
I was a member of my employers SSP for several years. I have not sold the shares. The dividends always pay for our holidays each year. The shares have significantly increased in value too, which is good except for the potential CGT.
R.
Same as me. Nice quarterly dividend and the shares are currently up by about 350% since purchase in 2003.R.
I think it depends a lot on how you're acquiring the shares.
For example, many US Tech companies now distribute "restricted stock" which is essentially a gift that the employee doesn't have to pay for (apart from tax implications), as well as offering Employee Stock Purchase Plans. With the latter, you're usually buying stock at a minimum 10% discount to the market price. However, Tech stocks can be quite volatile, and it doesn't take much movement to wipe out your 10% discount.
My own position at my last employer was that I was very happy to receive restricted stock grants, but didn't participate in the ESPP because I felt that the risk outweighed the relatively small profits that could be made. My financial situation was already highly exposed to my employer, so if I had spare money to invest, I'd prefer to invest it in the wider market for the long term. I think people often hold on to ESPP stock for too long, and end up getting burnt.
I'm in a similar boat. In fairness my company is down 50% when when I began buying 4 years ago.
That said, 1 in 10 free shares, good dividend, and the tax saving means I'm just about broken even and currently (hopefully) buying the shares now when they are undervalued.
I guess every situation is different, certainly in my case I'd need the share price to rise back to where it was to make it a worth while investment for those initial shares purchased. In for the longhaul I guess.
That said, 1 in 10 free shares, good dividend, and the tax saving means I'm just about broken even and currently (hopefully) buying the shares now when they are undervalued.
I guess every situation is different, certainly in my case I'd need the share price to rise back to where it was to make it a worth while investment for those initial shares purchased. In for the longhaul I guess.
We can pay in up to £500 a month over a period of 3, 5 or 7 years with the share price being that at a 10% discount from when you started paying in.
When they mature you have 3 options.
1. Take the cash you have paid in as interest free savings.
2. Buy them at the discounted price and sell all at that days share price.
3. Buy them at the discounted price but take the share certificate for you to manage.
I pay in over a rolling 3 years so every year have a batch maturing and always went option 3.
I send my share cert off to X-O and can sell them as and when I want for £5.99 per trade.
When they mature you have 3 options.
1. Take the cash you have paid in as interest free savings.
2. Buy them at the discounted price and sell all at that days share price.
3. Buy them at the discounted price but take the share certificate for you to manage.
I pay in over a rolling 3 years so every year have a batch maturing and always went option 3.
I send my share cert off to X-O and can sell them as and when I want for £5.99 per trade.
Under my previous Employer Share Scheme, we were unable to exersale for 3 years, plus for every single shares purchased, we were given 2 share options with a 10 years expiration. The Investment Banking industry was booming at the time, and I was selling chunks of my portfolio every 4-5 years to repay off my mortgage. Fortunately, my options was always in the money due to the rising market, and I crystalised approx 98% of my entire shares/options and paid off my mortgage pretty rapidly in early 2008,...... and just before the credit crunch / Lehman went to pot! On the flip side, one of my school friend lost an absolute fortune (a BIG 6 figures sum) from the '08 fall out as he regularly "invested" (and never sold any holdings) into the RBS share scheme via his annual bonus + monthly contributions.
To be honest, the option 10 years expiration date and partly the bull market drove my "best strategy" as it forced me to crystalise my profits before the options expired. Accept there was a stroke of luck with my timing too
To be honest, the option 10 years expiration date and partly the bull market drove my "best strategy" as it forced me to crystalise my profits before the options expired. Accept there was a stroke of luck with my timing too
anonymous said:
[redacted]
Yes, that certainly reduces the risk for ESPP, and it's what I would have done if I'd been in it. However, with there was an administrative delay of a few days after the ESPP purchase before you could actually sell them, which increased the risk of a market movement the wrong way in the meantime, and the minimum net profit would have only been a few hundred quid. Being burnt by holding ESPP at a previous company made me quite cautious !
DaveH23 said:
We can pay in up to £500 a month over a period of 3, 5 or 7 years with the share price being that at a 10% discount from when you started paying in.
When they mature you have 3 options.
1. Take the cash you have paid in as interest free savings.
2. Buy them at the discounted price and sell all at that days share price.
3. Buy them at the discounted price but take the share certificate for you to manage.
I pay in over a rolling 3 years so every year have a batch maturing and always went option 3.
I send my share cert off to X-O and can sell them as and when I want for £5.99 per trade.
I do something similar - every 3 years, wait for a reasonable price the following year to sell and spread my risk a bit but always hold a bit of a pot of the employers shares as the divi is good. When they mature you have 3 options.
1. Take the cash you have paid in as interest free savings.
2. Buy them at the discounted price and sell all at that days share price.
3. Buy them at the discounted price but take the share certificate for you to manage.
I pay in over a rolling 3 years so every year have a batch maturing and always went option 3.
I send my share cert off to X-O and can sell them as and when I want for £5.99 per trade.
Option price is a 20% discount too. Ching ching.
https://www.gov.uk/tax-employee-share-schemes/shar...
Looks like if you keep the shares in a "Share Incentive Plan" (whatever that means) you have no CGT liability.
Does anyone care to elucidate please?
Looks like if you keep the shares in a "Share Incentive Plan" (whatever that means) you have no CGT liability.
Does anyone care to elucidate please?
55palfers said:
https://www.gov.uk/tax-employee-share-schemes/shar...
Looks like if you keep the shares in a "Share Incentive Plan" (whatever that means) you have no CGT liability.
Does anyone care to elucidate please?
My scheme is a "SIP" and that's my understanding. As long as they're in for at least 5 years there's no taxes of any kind to pay when you take them out of the scheme or sell them. That's what we've been told anyway!Looks like if you keep the shares in a "Share Incentive Plan" (whatever that means) you have no CGT liability.
Does anyone care to elucidate please?
55palfers said:
https://www.gov.uk/tax-employee-share-schemes/shar...
Looks like if you keep the shares in a "Share Incentive Plan" (whatever that means) you have no CGT liability.
Does anyone care to elucidate please?
CGT becomes payable when you sell the shares.Looks like if you keep the shares in a "Share Incentive Plan" (whatever that means) you have no CGT liability.
Does anyone care to elucidate please?
coetzeeh said:
55palfers said:
https://www.gov.uk/tax-employee-share-schemes/shar...
Looks like if you keep the shares in a "Share Incentive Plan" (whatever that means) you have no CGT liability.
Does anyone care to elucidate please?
CGT becomes payable when you sell the shares.Looks like if you keep the shares in a "Share Incentive Plan" (whatever that means) you have no CGT liability.
Does anyone care to elucidate please?
I've not heard that mentioned before.
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