Make the most of employee share plan tax breaks

UK employees will miss out on a staggering £207 million of tax breaks this year, by failing to take advantage of employee share schemes, reveals IFA Promotion, the organisation promoting the benefits of independent financial advice.

Currently there are only 6,427 companies running a tax-advantaged employee share scheme. Of these only 744 are listed, 55 are overseas companies and 4,563 are smaller unlisted companies.

The figure represents the amount of tax which could be saved if each of the estimated 600,000 staff currently in a savings related share option scheme invested just half the level of investment permitted under the Government's Share Incentive Plans (£1,500 each), launched in 2001.

The Share Incentive Plan, currently run by only 467 UK companies, is said to be one of the most tax advantaged all-employee share schemes ever to be introduced in the UK. The main features of this scheme are:

• Employers can give up to £3,000 worth of "free shares" a year to employees free of tax and national insurance.
• Employees can buy up to £1,500 of "partnership shares" from their pre-tax monthly salary or weekly wages, free of tax and National Insurance Contribution liability.
• Employers can give employees up to two free "matching shares" for each partnership share the employees buy.
• Employees who keep their shares in the scheme plan for five years pay no income tax or NIC on profits made on their sale.
• Employees who take their shares out of the scheme plan after three years will pay income tax and NIC only on the initial value of the shares.

"We all wish we paid a little less to the taxman and had a little more money in our wallets, yet a substantial amount of tax is being wasted by failing to take advantage of employee share schemes. By seeking expert independent advice you will know if a Share Incentive Plan is suitable for your circumstances and it could help you avoid squandering money," said David Elms, Chief Executive of IFA Promotion.