What is a Sharesave (SAYE) option scheme?
A Sharesave (SAYE) share option scheme allows companies to invite their employees to buy shares in the company (or holding company) normally at a special discounted price. Eligible employees are invited to apply to be granted an option to buy shares based on the value of their savings under a Sharesave savings contract. The option can be exercised at a future date, at an exercise price that is fixed when the option is granted. Employees who choose to join the scheme are required to enter into a savings contract and save between £5 and £500per month (UK SAYE) and €12 and €500 per month (Irish SAYE) over a period of 3 or 5 years.
When the savings contract matures a tax-free bonus (if applicable) is added to their savings. They then have a period of six months in which to decide to exercise their option to buy shares. If they decide not to buy shares, they can simply retain their savings and any tax-free bonus. Under Irish SAYE, at maturity, participants with 5-year contracts can choose to leave their savings untouched for a further 2 years to receive an additional tax-free bonus (if available). However, their option to buy shares will lapse.
Sharesave (SAYE) schemes are HMRC (in the UK) and Irish Revenue Commissioners (in Ireland) approved so employees do not pay tax on the value of the option granted to them.
Features of a SAYE option scheme
- A tax-free bonus (if applicable) is added at the end of the 3 or 5 year contract and under Irish SAYE an additional, with an additional tax-free bonus (if available) added to 5 year contracts if left for 7 years. UK Bonus rates are fixed by HM Treasury and in Ireland by the savings provider. Bonus rates are set at the time of joining the scheme.
- The price at which employees can buy shares can be fixed at a discount to the value of shares at the time of invitation.
- Savings contributions are deducted by payroll from net pay.
- Employees are not obliged to exercise their options to buy shares, particularly if the current share price is less than the exercise price; instead they can choose to take their savings plus any tax-free bonus.
- Shares held under option by employees can normally only be purchased when the savings contract matures.
- If an employee leaves the company for any reason other than resignation or dismissal, the scheme rules usually allow them to buy shares under option using the value of their savings, to date, together with any accrued interest.
- An employee in an approved Sharesave scheme does not normally pay income tax or National Insurance (UK) or PRSI/USC (Ireland) on any bonus or interest received under the Sharesave contract.
- Capital Gains Tax may be payable when the shares are sold.
For more information on Sharesave (SAYE) Schemes please visit the Frequently Asked Questions (FAQ’s) section of the Shares at Work website.
The above is a general guide only and employees should refer to their company’s Scheme Booklet for specific details of the scheme offered.