Tax and National Insurance on employee share schemes :Cross Stitch – Money, tax and benefits
If your employer offers you shares in their company as part of a government approved share scheme you get certain tax advantages. Approved schemes are: Share Incentive Plans, Save As You Earn schemes, Company Share Option Plans and Enterprise Management Incentive schemes.
If you get shares under a Share Incentive Plan and keep them in the Plan for five years, you will not pay Income Tax or National Insurance contributions on their value when you acquire them. (Employers normally have to deduct this from the value of the shares you get from the Plan.)
You also won’t pay any Capital Gains Tax if you keep them in the Share Incentive Plan until you sell them. If you keep the shares after you take them out of the Plan, you may have to pay Capital Gains Tax on any increase in value between when you take them out and when you sell them.
If you take shares out of the Share Incentive Plan early, you will pay Income Tax and National Insurance contributions – the amount depending on when you take them out.
An approved Share Incentive Plan must be available to all employees who’ve been with the company for a certain time.
There are four different ways in which you can receive shares under Share Incentive Plans:
Your employer can give you up to £3,000 worth of free shares in any tax year. Awards may be linked to performance, such as the performance of individuals, teams, divisions or work units.
You can buy shares out of your salary before deduction of Income Tax and National Insurance contributions. You can spend up to £1,500 in any tax year on partnership shares (or up to ten per cent of your income for the tax year if that is less).
Your employer can give you up to two free matching shares for each partnership share you buy.
An approved Save As You Earn scheme is a savings-related share option scheme. It must be available to all employees who’ve been with the company for a certain time. The scheme gives you a right – known as an ‘option’ – to buy shares with your Save As You Earn savings for a price that’s fixed at the start.
You can save up to £250 a month under the scheme out of your take-home pay. At the end of your savings contract (three, five – or sometimes seven – years) you can use the savings to buy the shares.
The interest and any bonus you receive at the end of your savings scheme is tax-free – unless you cash it in early.
Also you don’t pay any Income Tax and National Insurance contributions on the difference between what you pay for the shares when you use your option and what they’re actually worth.
An approved Company Share Option Plan gives you a right (or ‘option’) to buy up to £30,000 worth of shares at a price fixed at the outset. Your employer can choose who to offer options to.
Tax advantages
You won’t pay Income Tax and National Insurance contributions on the difference between what you pay for the shares when you use your option and what they’re actually worth.
Tax when you sell the shares
You may have to pay Capital Gains Tax when you sell the shares.
If you work for a company that has assets of up to £30 million, it can offer Enterprise Management Incentives. You are given an option to buy shares worth up to £120,000 without having to pay Income Tax or National Insurance contributions on the difference between what you pay for the shares when you use your option and what they’re actually worth. Your employer can choose who to offer options to.
You may have to pay Capital Gains Tax when you sell the shares.
Not all employee share schemes are approved by the government – and those that aren’t don’t have the same tax advantages.
With an unapproved scheme you’ll pay:
- Income Tax and National Insurance contributions when you use the option to buy shares for less than their value
- Capital Gains Tax when you sell the shares based on the increase in value since the shares were issued to you
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Provided by HM Revenue and Customs