Chapter 16 - Savings Related Share Option Schemes

Question 1

Operation of the Scheme

Answer 1

Very simple. An employee will make regular monthly savings into a designated bank account - SAYE. They will make the savings during a designated period, at the end of the period, the bank will add a terminal bonus to the savings. This cash will then be used to buy shares in the employer company at a price that was fixed at the start of the contract period.

Question 2

Conditions

Answer 2

Scheme must be registered with HMRC. Shares must be ordinary. Usually a quoted co but doesn’t have to be. All employees must be eligible to participate, employers can exclude those with less than 5 years service.

Question 3

The Share Options

Answer 3

Option to buy shares at a certain price is granted - must be at least 80% of MV at grant. The employee signs a contract with the bank to save for 3 or 5 years. At the end, the savings and bonus are used to buy shares.

Question 4

The SAYE Account

Answer 4

Employee saves for 3 or 5 years. Signs a contract to do so. Amount of bonus varies depending on the contract. The bonus is always tax free. Minimum monthly contribution is £5.

Question 5

Tax Implications

Answer 5

Only tax to consider will be CGT when the employee sells the shares. There are no IT or NIC implications. CGT will be due on difference between cost and sale

Question 6

Employee Leaving

Answer 6

If for death, the option can be exercised within 12 months of the death.
If for injury, disability, redundancy or retirement, the option can be exercised within 6 months.
If voluntarily leaving more than 3 years into a 5 year contract, they can have 6 months to exercise
Otherwise they need to be in employment at the end of the contract to be able to exercise.

Question 7

Employee Leaving Cont.

Answer 7

If they leave voluntarily, the options generally lapse but they can either continue saving and earn the tax free bonus, or withdraw the savings with tax free interest to that point