Sharesave Plan

The Inland Revenue approved Sharesave Plan was introduced 1980. It is an all-employee (i.e. participation must be offered to all qualifying employees) plan. At the time of the grant of the option the employee enters into a savings contract, the proceeds of which are then used to exercise the option on maturity of the savings contract. The main features of the Sharesave Plan are:-

• "qualifying" employees must be offered participation in the Plan although it is not necessary that they should actually participate. Participation is voluntary. Participation may also be extended at the discretion of the company to other employees. Qualifying employees must be:-

  • any employee or full-time director of a participating company;

  • employed for a continuous period not exceeding 5 years; and

  • chargeable to UK income tax under Schedule E as a person who is resident and ordinarily in the UK for tax purposes.

• Participants enter into a savings contract with a savings provider, usually a UK bank, approved European institution or a building society, to make regular savings of a fixed sum (between £5 and £250 per month) for a specified period (i.e., 3 years, 5 years or 7 years).

• At the time the savings contract is entered into an option, the aggregate exercise price of which would generally be equal to the expected proceeds on maturity of the savings contract, is granted to the employee.

• The exercise price of a share can be at a discount of up to 20% of its market value.

• A guaranteed tax-free bonus (currently 2.75 times the monthly contribution for a 3 year contract; 7.5 times the monthly contribution for a 5 year contract and 13.5 times the monthly contribution for a 7 year contract) is payable on the maturity of the savings contract.

• At the end of the contract period the optionee claims the tax-free bonus and his contributions and may then choose to exercise the whole or part of the option. Any unexercised part of the option will thereafter lapse and cease to be exercisable.

• Provisions are included in the legislation to permit early exercise of the option (i.e. before maturity of the savings contract) in cases such as redundancy, retirement, ill health, death etc. 

Tax Relief

The cash bonus paid under the savings contract is tax-free. Gains which arise on the exercise of the option following maturity is free of income tax. The discount of up to 20% of the share price at grant of the option is not subject to income tax. Capital gains may be chargeable but can be avoided or reduced by prudent timing and use of the annual exempt amount. Shares acquired on the exercise of an option which are put into a personal equity plan within 90 days of the exercise of the option can continue to be sheltered from tax. The company can obtain a corporation tax deduction for the cost of establishing and administering the Sharesave Plan. 

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This briefing has been prepared for general guidance only and should not be acted upon without specific advice. Please contact us if you require further information.