What types of employee share schemes receive favourable tax treatment?

Only schemes approved by HM Revenue and Customs receive favourable tax treatment. The four types of approved HMRC schemes are:

  • Share Incentive Plans (SIPs);
  • Save As You Earn (SAYE) schemes;
  • Company Share Option Plans (CSOPs); and
  • Enterprise Management Incentives schemes (EMIs).

SIPs have four main components:

  • free shares – where your employer can give you up to £3,000 worth of free shares in any tax year (2017-18);
  • partnership shares – where your employer offers you the option to buy shares from your salary. Tax and National Insurance contributions (NICs) on your salary are worked out after deducting the amount to cover the share purchase so both will be reduced;
  • matching shares – where your employer can give you up to two free partnership shares for each share you buy; and
  • dividend shares – you may be able to buy more shares with the dividends you get from free, partnership or matching shares (but only if your employer’s scheme allows it) and means you will not have to pay Income Tax on the dividend income if you re-invest it in the company and keep the shares for at least three years.

An SAYE scheme is an employer-based savings scheme made available to all employees of the company who have been employed for a qualifying period. It provides those employees with a right to buy shares from savings for a price, fixed at the start of the savings period. Any interest or bonus paid at the end of the scheme is tax-free.

A CSOP gives you the option to buy shares in the company for a fixed price at a particular time. This does not have to be offered to every employee, only those your company choose. As long as you stay within the rules of the scheme, you will not have to pay Income Tax or NI on the difference between what you pay for the shares and what they’re actually worth (you may have to pay Capital Gains Tax if you sell them)..

EMIs apply to employees working for a company with assets of up to £30m. The company can offer you shares without you having to pay Income Tax and NICs. Visit the GOV.UK website for more information about employee share schemes and the limits that apply to them.

Note: This content is provided as general background information and should not be taken as legal advice or financial advice for your particular situation. Make sure to get individual advice on your case from your union, a source on our free help page or an independent financial advisor before taking any action.

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