Will 2014 be a big windfall for those in employee share schemes?

19th December 2013

Jonathan Watts-Lay, Director, WEALTH at work comments in Reward “The Autumn Statement contained the welcome news that savings allowances on two popular employee share incentive schemes, Share Incentive Plans (SIP) and Save As You Earn (SAYE) were being increased; and in the case of Save as You Earn (SAYE), doubled from April 2014.

For SAYE the maximum monthly contribution is increases for the first time since 1991 from £250 to £500. For employees it’s a risk free way of considering the ownership of shares. At the start of the plan the share price, which can be discounted by up to 20% under HMRC rules, is known and set. At the end of the plan employees can choose to buy the shares at the original price or simply take their savings as cash.

These increases are great news and whilst we can’t say this will definitely make more people save into schemes, for those that do, it will certainly give them more scope to benefit from the attractive tax advantages available. For example it’s going to be possible to save £30,000 over 5 years into an SAYE scheme; this is a significant ‘investment’ amount and with the right advice and planning can be entirely free of income tax or capital gains tax if shares are bought at the end of the scheme.

It is also an ideal opportunity to engage with employees to educate them about the benefits of employee share schemes and the positive way in which companies are providing access to these highly tax advantaged schemes especially if the tax efficiencies are maximised.

For instance by integrating a Save As You Earn (SAYE) scheme with a Workplace ISA, your employees can transfer SAYE shares into the ISA and mitigate their capital gains tax liability; there is also a little understood opportunity to ‘supercharge’ pension savings for example, integrating a Share Incentive Plan (SIP) with a Workplace Self Invested Personal Pension that would let your employees benefit from double tax relief.

During 2014 we expect to see quite a few Share Incentive schemes and SAYE schemes with big gains for employees. The FTSE 100 is currently about 50% higher than its mid value in 2009 and there has been a corresponding or greater increase in some individual company share prices. It is likely that for some fortunate employees the gains will run into the tens of thousands of pounds.

In fact for some employees we think 2014 may see the biggest investment windfalls they get in their working lifetime and it is vital that they receive advice on how to properly manage these gains, particularly those from SAYE schemes where on sale, capital gains tax (CGT) may be payable. Without the correct financial education and advice about how to use their personal tax and ISA allowances it’s possible that we will see some employees with 5 figure CGT bills which could have been avoided altogether.

At the same time actually holding too many shares in a single company is risky; we talk to employers and employees alike about this risk and educate on the benefits of diversification, i.e. not putting all your eggs in one basket. It might sound obvious however recent history, particularly with banking shares, has taught us that sometimes the obvious gets overlooked.

Of course using any of these tax planning tools requires financial education but this can be simple and cost effective to put in place and make a huge difference to your employees’ financial wellbeing whilst creating a positive feeling towards an employer.

So, we welcome the changes announced in the autumn statement and think 2014 will be a year which brings great financial gain to many employees whilst offering an opportunity for some serious engagement for employers and employees.”

Please see Reward to learn more.