Employee Share Scheme Transfers
Transferring Employee Share Scheme shares into an HL Account
Employee Share Schemes (ESS) are schemes offered to employees by companies as an effective way to reward employees with shares in the company and potentially provide tax benefits in doing so.
There are several different types of share schemes, and the tax benefits differ between them. Here’s a breakdown:
The information on this page is not personal advice, if you’re unsure seek advice. All investments and any income from them can fall as well as rise in value, so you could get back less than you invest. Tax, ISA and SIPP rules can change and benefits depend on personal circumstances.
What is a Save As You Earn (SAYE)?
A ‘Save as you Earn’ (SAYE) scheme is a government-backed scheme which allows employees to set aside some of their salary to buy shares in the company they work for at a discounted price.
In a SAYE scheme, employees are given the option to set aside a portion of their salary each month, currently limited to between £5 and £500. With this contribution employees are able to buy shares in the company at a fixed price at a later date. SAYE scheme contracts are either 3 or 5 years long.
SAYE schemes are tax beneficial as there is no Income Tax or National Insurance payable on the difference between what you pay for the shares and what they’re worth. Capital Gains Tax (CGT) may be payable if the employee sells the shares. They also enable employees at all levels to participate in the success of the company they work for.
What is a Share Incentive Plan (SIP)?
A ‘Share Incentive Plan’ (SIP) is a government-backed scheme which enables companies to give employees shares in the company they work for and the opportunity to purchase further shares. SIPs are a popular way for companies to give employees a sense of ownership in the company and the opportunity to gain a financial reward beyond their annual salary.
If you keep the shares you receive in a SIP for five years you will not pay Income Tax or National Insurance on their value. You will also not have to pay CGT on the shares you sell if you keep them in the plan up to the day you sell them. If you remove them from the plan, you may need to pay CGT when you come to sell or dispose of them.
In the UK, there are four main types of shares in a SIP:
- Free Shares – Companies can give up to £3,600 of free shares to an employee each tax year. Employees can’t take the shares out of the plan for the first three years but if they leave the shares in the plan for five years, they can get the full tax benefits if they sell them when the plan ends.
- Partnership Shares – Employees can purchase shares in the company out of their salary before tax deductions. The limit is either £1,800 or 10% of their income for the tax year, whichever is lower. These shares can be taken out of the plan at any times.
- Matching Shares – Companies can give up to two free matching shares for each partnership share the employee buys. If the employee takes the partnership shares out of the plan before five years has passed, they could lose the matching shares the company awarded.
- Dividend Shares – Companies may allow employees to buy more shares with the dividends they get from free, partnership or matching shares. Employees won’t pay Income Tax if they keep the dividend shares for at least 3 years.
Other Share Schemes
SAYE schemes and SIPs aren’t the only types of scheme that exist. Other schemes companies offer include Company Share Option Plans (CSOPs), Enterprise Management Incentives (EMIs) or Restricted Stock Units (RSUs).
It is worth nothing that the details of these schemes may look similar, however some aren’t HMRC approved, and companies may name their schemes differently. If you’re unsure which type of scheme you are enrolled in, Hargreaves Lansdown will assess the evidence and work out which scheme you are currently on.
What happens when my SAYE scheme ends?
When your SAYE scheme matures, you’ll usually have two options.
- Use your savings to buy some or all the shares
- Buy and Sell – You may choose to do this if the company’s share price has risen, you can use your savings to buy the shares and then sell them. However, you may have to pay Capital Gains Tax (CGT) on the profits.
- Buy and Transfer – If you want to transfer your shares to a pension or an ISA directly, you have 90 days from the end of the scheme to do so. Transferring the shares to an ISA within this time limit, or to a pension immediately, isn’t a disposal and so you won’t have to pay CGT. If you transfer the shares to an ISA or pension, you won’t be subject to CGT when you sell the shares as ISAs and pensions are tax-efficient wrapper accounts. If you want to move the shares into an ISA or pension after this period, you’ll have to sell your shares and repurchase them in your ISA or pension and any profits may be subject to CGT. If you transfer the shares to an ISA or a pension, it will be treated as a new subscription or contribution and the normal ISA and pension limits apply.
- Buy and Keep – You can keep your shares in a standard investment account rather than an ISA or pension. However, if you sell or dispose of the shares, the profits will be subject to CGT.
- Decide not to purchase the shares and have your savings returned as a lump sum.
- You can decide not to purchase any of your company’s shares, you may wish to do this when the share price is now below the exercise price. Your savings will be returned to you as a lump sum plus any interest earned. Currently, the interest rate is 1.1% for 3-year schemes and 3.2% for 5-year schemes.
Taking shares out of a Share Incentive Plan
Unlike a SAYE scheme, the shares in a SIP do not mature, and can be kept in the plan for as long as the employee works for the company.
If the shares have been held in the plan for 5 years, Income Tax and National Insurance are not payable on their value when they’re sold.
As explained above, a SIP may include several different types of shares each with different tax rules.
Free Shares + Matching Shares
- During the first 3 years
Pay Income Tax on market value of shares at time of withdrawal. - Between 3 and 5 years
Pay Income Tax on the value of the shares at acquisition or withdrawal, whichever is lower. - After 5 years
No Income Tax or National Insurance is chargeable.
Partnership Shares
- During the first 3 years
Pay Income Tax and National Insurance on market value of shares at withdrawal. - Between 3 and 5 years
Pay Income Tax on the salary used to buy the shares or the market value at withdrawal, whichever is lower. - After 5 years
No Income Tax or National Insurance is chargeable.
Dividend Shares
- During the first 3 years
Pay Income Tax on the amount of the cash dividend originally used to acquire dividend shares, at the prevailing dividend rate at withdrawal. - Between 3 and 5 years
No Income Tax or National Insurance is chargeable. - After 5 years
No Income Tax or National Insurance is chargeable.
Why transfer Employee Share Scheme shares into an ISA?
The returns from investments, such as shares, can be subject to tax. This can be in the form of capital gains tax – a tax on any profit you make when you dispose of the shares – or income tax on the dividends received. If the shares are held in an ISA, there is no further UK tax to pay on any sale profits or dividends.
Shares cannot usually be transferred directly into an ISA - they must be sold, the cash moved into the ISA and then repurchased. However, HMRC does allow shares from a SAYE scheme or SIP to be transferred directly into an ISA, providing it is within 90 days of the exercise of the option date (SAYE schemes) or when the shares are removed from the scheme (SIPs). This avoids the transaction costs of selling and repurchasing the shares, and potentially any capital gains tax.
How many shares can I transfer into an ISA?
Each tax year (6 April to 5 April) there’s a maximum amount of money you can put in ISAs, called the ISA allowance. You have until 23:59 on 5 April each year to add money to your ISAs, and the allowance each year doesn’t carry over. You can spread your allowance, which is currently £20,000 across different types of ISAs.
There is no limit to what you can invest (up to your allowance) in Stocks and Shares ISAs, Cash ISAs or Innovative Finance ISAs. However, you can only invest £4,000 per tax year in a Lifetime ISA (LISA). For example, you could pay £8,000 into both a Stocks and Shares ISA and a Cash ISA, and the remaining £4,000 of your ISA allowance into a LISA.
How do I transfer my shares into an HL ISA?
Once your shares are transferred into your HL Fund and Share account, if you wish to transfer them to an ISA, you’ll need to fill out an Employee Share Scheme (ESS) form and provide evidence that:
- Your shares have emerged from an HMRC-approved Save As You Earn (sometimes called Sharesave) scheme or Share Incentive (sometimes called Sharepurchase) Plan. The evidence must show your name, the name of the shares, and the number of shares received from the scheme.
- For SAYE schemes: HMRC rules state that your shares can only be transferred directly to
an ISA within 90 days of the date you exercised your option to buy them, rather than take the cash.
Therefore, we need evidence of the date you exercised your option to buy your shares.
For SIPs: HMRC rules state that your shares can only be transferred directly to an ISA within 90 days of the date your shares left the plan account. Therefore, if your shares have been transferred to a separate account before transferring to HL, we’ll also need evidence of the date this transfer happened, or an opening statement for the separate account.
What does it cost to transfer into an ISA?
There are no charges to transfer your shares into an ISA, nor are there any charges for opening an ISA. However, there are annual account charges, these are listed below:
Stocks and Shares ISA – 0.45% (capped at £45 per year)
Lifetime ISA – 0.25% (capped at £45 per year)
You can find full details of HL’s charges here.