SAYE share schemes – what can be done to reduce capital gains tax?

18th August 2015

Many employees are benefiting from maturing Save As You Earn (SAYE) share schemes this year, but what can employees do to reduce, or even eliminate, their capital gains tax (CGT) liability?

Jonathan Watts-Lay, Director, WEALTH at work, comments; “There are a few key things that share scheme participants should consider to protect their windfall from Capital Gains Tax (CGT) and manage it in the most tax-efficient way. Firstly, the timing of many SAYE schemes means that the CGT liability can be split over two consecutive tax years, meaning that £22,200 rather than £11,100 of gains could be saved from CGT.”

“Employees also don’t have to pay CGT if they carry out an ‘in specie’ transfer into an ISA within 90 days of exercising the option. Many high street ISA providers can’t facilitate an in specie transfer so employees would need to use a workplace ISA, or a specialist provider.”

“It may be possible to reduce the potential CGT liability further by doing transfers to an ISA over two consecutive tax years, shielding £30,480 of capital, and don’t forget to consider using the CGT allowances of a spouse or civil partner.”

“Those who want to cash in their shares can mitigate CGT by transferring shares into an ISA before selling them and withdrawing the money. However, it is important to remember that for the brief time they hold the shares they are exposed to market risk, for example if there was a sudden share price crash.”

“For most individuals, if an employer offers this type of share scheme it is a good idea to invest. However, if the bulk of someone’s savings are in shares of the same company for which they work, they should consider diversifying to a broader spread of investments as each scheme matures. Having all your eggs in one basket is a high risk approach. It is often advisable to spread investments as widely as possible and thereby reduce the risk of being exposed to the movements in price of just one company. If the company were to struggle, they could lose their job and savings, as we saw during the financial crisis.”

“We work with many individuals to help them to consider how to hold their investments in a manner which is not only tax efficient but can help avoid taking more risk than they may wish to.”