2.2.16 Employees Share Option Schemes

Save As You Earn (SAYE) Schemes

• Employees save a fixed amount of between £5 and £250 p.m. This is invested with a building society or via National Savings.

• At the end of the fixed term of 3, 5 or 7 years a bonus is added to the amount saved. The proceeds are then used to purchase shares in the employing company at not less than 80% of the market price at the scheme commencement date.

Executive Share Option Schemes

• Membership is limited to employees and full time directors who work at least 25 hours per week.

• The amount of options granted to each member is limited to £30,000 at the time of allocation. The exercise price of the option cannot be substantially less than the market value at the allocation date.

• Provided options are exercised between 3 and 10 years after they were granted, there is no income tax charge. The business asset rate of taper relief is used for capital gains tax purposes.

Company Share Option Plans (CSOPs)

• Employers must impose a minimum qualifying period of service for employees to participate in CSOPs.

• Employees can be granted an option to purchase up to £30,000 worth of shares in the employing company. The purchase price on exercising the option is the price of the shares at the time the option was granted.

• Provided the option is held for three years no National Insurance or income tax charge will be incurred by the employee. Any gain arising on disposal is subject to CGT but business asset taper relief applies.

Profit Sharing Schemes

• Part of the company's profits are paid to a trust. The money is used to purchase shares in the company which are held in the trust on behalf of the employees.

• Employees are allocated shares under the scheme. The maximum allocation is the greater of:
  
  £3,000
  or
  10% of salary subject to an overriding limit of £8,000.
  

• The employees receive the dividends from shares held in the trust on their behalf.

• If the shares are held by the trustees for 3 years, no income tax liability is incurred by the employee. However, if an employee sells shares within 3 years of receiving an allocation there will be an income tax charge. The charge will be based on the lower of:
  
  market value of the shares at allocation
  or
  sale price of the shares.

• The tax charge is reduced by 50% if the employee leaves the company due to retirement, redundancy, injury or disability.

All Employee Share Ownership Schemes

• These schemes were introduced in 2000.

• Each year an employer can give each employee up to £3,000 worth of shares in the company tax free. The giving of shares can be performance related.

• Employees can buy up to £1,500 worth of "partnership shares" per year from pre tax pay. These are free of tax and National Insurance.

• Employers can match the "partnership shares" by giving up to two free shares for each "partnership shares" bought by an employee.