Employee Stock Purchase Plan?
Discussion
The company I work for has just announced an Employee Stock Purchase Plan where I can buy some company shares (it's a percentage of my take home pay) at a 15% discount. I know this is a 'how long is a piece of string?' type question, but is this kind of thing a good idea as an extra way to save?
The company is on the NASDAQ, I haven't heard anything that suggests it's going downhill any time soon, though the shares have never paid any dividends so as I understand it they'll just be a lump of 'stuff' that will hopefully increase in value.
I've already got a savings account, ISA with Vanguard and some other shares I've inherited (that do pay dividends so their value is increasing), is it worth putting a couple of % into my company shares as I get them at a discount?
The company is on the NASDAQ, I haven't heard anything that suggests it's going downhill any time soon, though the shares have never paid any dividends so as I understand it they'll just be a lump of 'stuff' that will hopefully increase in value.
I've already got a savings account, ISA with Vanguard and some other shares I've inherited (that do pay dividends so their value is increasing), is it worth putting a couple of % into my company shares as I get them at a discount?
Many years ago and over a long period I was able to invest in my employers ESPP. The company's shares are quoted on the NYSE and they pay regular dividends. Some of these shares are now worth in excess of 10 x the purchase price. I consider it to be an excellent decision. I cannot say the same about any other employer's similar scheme.
Some things to note.
1. Make sure that you keep good historical records of all your activities in the ESPP.
2. Get yourself registered in the USA for USA IRS purposes as a Non-resident Alien. This means that if there are any payments due to you eg for dividends etc, USA tax liability will be reduced to the withholding tax levels before payment. You will then have to account to HMRC for the amounts received and deduct the withholding tax when completing UK SA documents. In order to get the NRA status you need to complete the USA form W-8BEN and lodge this with the USA administrator of the ESPP.
3. If you decide to retain the shares and then sell any shares at a later date, presumably via the USA administrator of the ESPP, they will pay the amount net of dealing expenses. There will be no USA capital gains tax if you are registered as a NRA. You will be liable for UK CGT on any gain in excess of the CGT allowance, currently £11,800. In my experience, selling the shares is simple, calculating any CGT etc is rather involved, but as long as you keep good records of all activities you will be able to get through the process (and learn all about s.104 holdings!). Note that if the gain is less than the CGT allowance AND the total realised by the sale is less than 4 x the CGT allowance, there is no requirement to report the share sale to HMRC. Both these are facts to consider when deciding how many shares to sell if you want to avoid UK CGT and reporting requirements.
4. Once fully owned by you, consider transferring some shares to the wife because that way she can sell and get the benefit of her own CGT allowance of £11,800.
5. Check out the UK tax implications of joining your employer's ESPP. Your employer should tell you about these as a matter of course anyway.
I suspect others will add their advice on here too.
R.
Some things to note.
1. Make sure that you keep good historical records of all your activities in the ESPP.
2. Get yourself registered in the USA for USA IRS purposes as a Non-resident Alien. This means that if there are any payments due to you eg for dividends etc, USA tax liability will be reduced to the withholding tax levels before payment. You will then have to account to HMRC for the amounts received and deduct the withholding tax when completing UK SA documents. In order to get the NRA status you need to complete the USA form W-8BEN and lodge this with the USA administrator of the ESPP.
3. If you decide to retain the shares and then sell any shares at a later date, presumably via the USA administrator of the ESPP, they will pay the amount net of dealing expenses. There will be no USA capital gains tax if you are registered as a NRA. You will be liable for UK CGT on any gain in excess of the CGT allowance, currently £11,800. In my experience, selling the shares is simple, calculating any CGT etc is rather involved, but as long as you keep good records of all activities you will be able to get through the process (and learn all about s.104 holdings!). Note that if the gain is less than the CGT allowance AND the total realised by the sale is less than 4 x the CGT allowance, there is no requirement to report the share sale to HMRC. Both these are facts to consider when deciding how many shares to sell if you want to avoid UK CGT and reporting requirements.
4. Once fully owned by you, consider transferring some shares to the wife because that way she can sell and get the benefit of her own CGT allowance of £11,800.
5. Check out the UK tax implications of joining your employer's ESPP. Your employer should tell you about these as a matter of course anyway.
I suspect others will add their advice on here too.
R.
I'm with a US company with a scheme that sounds the same
basically you put x away each month. in 6 months they use it to buy share at 15% below agreed value from teh scheme start.
So basically if you then sell you've made 15% of your investment even if teh shares haven;t gone up, if they have you make more.
If they go down the scheme rolls for 6 months
you can't really lose
basically you put x away each month. in 6 months they use it to buy share at 15% below agreed value from teh scheme start.
So basically if you then sell you've made 15% of your investment even if teh shares haven;t gone up, if they have you make more.
If they go down the scheme rolls for 6 months
you can't really lose
I have done the same on a scheme about 20 years ago.
From memory, I did it for a year and by the time I had transferred dollars to pounds, share price volatility (I think many employees sold at the same time) plus other stuff I think I roughly broke even.
So as a short term investment it did not work for me. Longer term it 'might' be better?
From memory, I did it for a year and by the time I had transferred dollars to pounds, share price volatility (I think many employees sold at the same time) plus other stuff I think I roughly broke even.
So as a short term investment it did not work for me. Longer term it 'might' be better?
mike9009 said:
I have done the same on a scheme about 20 years ago.
From memory, I did it for a year and by the time I had transferred dollars to pounds, share price volatility (I think many employees sold at the same time) plus other stuff I think I roughly broke even.
So as a short term investment it did not work for me. Longer term it 'might' be better?
It’s really a long term investment. Luckily mine doubled about 4 times iirc due to stock splits at the time (late 80s to late 90s).From memory, I did it for a year and by the time I had transferred dollars to pounds, share price volatility (I think many employees sold at the same time) plus other stuff I think I roughly broke even.
So as a short term investment it did not work for me. Longer term it 'might' be better?
Not sure what's special about our scheme but as long as we leave the shares in it for at least 5 years then they're free of tax if we want to sell.
It's a blue chip US based multinational. We get the shares at a discount, think it's something along the lines of buy 2 get 1 free, they pay a decent dividend which is reinvested for us, and the price has gone up massively over the years. As far as I see it I can't lose unless the management start making some really dodgy decisions
It's a blue chip US based multinational. We get the shares at a discount, think it's something along the lines of buy 2 get 1 free, they pay a decent dividend which is reinvested for us, and the price has gone up massively over the years. As far as I see it I can't lose unless the management start making some really dodgy decisions
Mines is Uk based and its a win or draw situation. put away x ammoount per month for 3 years at an agreed stock price so £1.80 right now but current value £2.05. After 3 years if the stock price is higher you get 3 years of your money buying the shares at 1.80 but the shares could be £2.50.
If the price has fallen to say £1.50 you just take your money back. Ok you lost out on 3 years on interest or oportunity cost of what you could have done with that money but it is a cracking way to make some money. Afree bet really.
My funds are covered as well to the smae level of savings in a bank so if teh company went under you get your money back.
current one I have £100 a month started a year ago. If the share price stays the same now to 2 years time the £3600 i will have put in will be worth £5300.
If the price has fallen to say £1.50 you just take your money back. Ok you lost out on 3 years on interest or oportunity cost of what you could have done with that money but it is a cracking way to make some money. Afree bet really.
My funds are covered as well to the smae level of savings in a bank so if teh company went under you get your money back.
current one I have £100 a month started a year ago. If the share price stays the same now to 2 years time the £3600 i will have put in will be worth £5300.
C0ffin D0dger said:
Not sure what's special about our scheme but as long as we leave the shares in it for at least 5 years then they're free of tax if we want to sell.
It's a blue chip US based multinational. We get the shares at a discount, think it's something along the lines of buy 2 get 1 free, they pay a decent dividend which is reinvested for us, and the price has gone up massively over the years. As far as I see it I can't lose unless the management start making some really dodgy decisions
Unless I’m missing something, surely they will be liable for CGT?It's a blue chip US based multinational. We get the shares at a discount, think it's something along the lines of buy 2 get 1 free, they pay a decent dividend which is reinvested for us, and the price has gone up massively over the years. As far as I see it I can't lose unless the management start making some really dodgy decisions
garyhun said:
C0ffin D0dger said:
Not sure what's special about our scheme but as long as we leave the shares in it for at least 5 years then they're free of tax if we want to sell.
It's a blue chip US based multinational. We get the shares at a discount, think it's something along the lines of buy 2 get 1 free, they pay a decent dividend which is reinvested for us, and the price has gone up massively over the years. As far as I see it I can't lose unless the management start making some really dodgy decisions
Unless I’m missing something, surely they will be liable for CGT?It's a blue chip US based multinational. We get the shares at a discount, think it's something along the lines of buy 2 get 1 free, they pay a decent dividend which is reinvested for us, and the price has gone up massively over the years. As far as I see it I can't lose unless the management start making some really dodgy decisions
So dont get toooo excited looking at your balance now, check again in 12 months when they have vested. If I look at mine now and convert to £££ it looks ok, then by the time the vest 25% have gone....and you are at the mercy of the exchange rate whenever you want to transfer back over here.
Saying that I did make tens of thousands over the years on stock grants, its a slightly better way to get paid big bonuses, versus paying >40% tax on PAYE earnings
[quote=bogie]
The UK has a tax deal with the US and so long as your W8BEN is on file they just tax at source, you dont even notice it. They sell 25% of your shares when they vest before you get hold of them to go to US tax man. (at least in every US scheme ive been in)
That's odd. I've been in my employers ESPP for many years, sold shares and always got the gross proceeds paid to the UK, no USA tax at all. I have a W-8BEN filed in the USA. There is a liability for UK CGT if I exceed the annual allowance.
R.
The UK has a tax deal with the US and so long as your W8BEN is on file they just tax at source, you dont even notice it. They sell 25% of your shares when they vest before you get hold of them to go to US tax man. (at least in every US scheme ive been in)
That's odd. I've been in my employers ESPP for many years, sold shares and always got the gross proceeds paid to the UK, no USA tax at all. I have a W-8BEN filed in the USA. There is a liability for UK CGT if I exceed the annual allowance.
R.
garyhun said:
Unless I’m missing something, surely they will be liable for CGT?
I'm pretty sure with ours there is no tax after 5 years - somethign to do with the HMRC approval of the scheme. Ours was on hold for a couple of years because of that. Unlikley to get to a CGT limit as the amount that can be bought is ony £100 a month or something (unless of course making gains elsewhere, when it could get more complicated). abzmike said:
I'm pretty sure with ours there is no tax after 5 years - somethign to do with the HMRC approval of the scheme. Ours was on hold for a couple of years because of that. Unlikley to get to a CGT limit as the amount that can be bought is ony £100 a month or something (unless of course making gains elsewhere, when it could get more complicated).
£100 pm for 10 years is £12,000. They could easily increase in value aver that period such that the gain exceed the CGT allowance if then sold. Or am I missing something?R.
W8BEN means there is NO US tax deduction, you get the gross.
Since your ESPP is subject to income tax on the profit this may well get deducted at source by your employer automatically selling some stock.
What you pay into ESPP comes out of your gross.
Many, if not all UK share saves work very differently. The pay in for 3 years thing is usual.
The US ESPP schemes are better as they “pay out” every six months.
You unless they tank in the immediate days after vesting your are always going to make 7% plus depending on your marginal tax rate.
Since your ESPP is subject to income tax on the profit this may well get deducted at source by your employer automatically selling some stock.
What you pay into ESPP comes out of your gross.
Many, if not all UK share saves work very differently. The pay in for 3 years thing is usual.
The US ESPP schemes are better as they “pay out” every six months.
You unless they tank in the immediate days after vesting your are always going to make 7% plus depending on your marginal tax rate.
The Leaper said:
£100 pm for 10 years is £12,000. They could easily increase in value aver that period such that the gain exceed the CGT allowance if then sold. Or am I missing something?
R.
Put it that way, I guess they could. Would be a nice problem to have - my pot is currently worth less than I’ve paid in!R.
Im confused and think I figured it out. On ESPP shares we bought out of our salary it was only if you went over CGT limits you need to pay tax. The other scheme where they sold 25% of the shares for tax upon vesting was the yearly stock bonus award , via RSU restricted stock unit.
Sounds right as ESPP is your money out of your salary, already taxed, you are buying shares at discount. The RSU scheme is just like getting more salary in lump sum that only vests in yearly intervals hence tax needs paying on them.
Sounds right as ESPP is your money out of your salary, already taxed, you are buying shares at discount. The RSU scheme is just like getting more salary in lump sum that only vests in yearly intervals hence tax needs paying on them.
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