I currently save into my employer's SAYE share scheme. The share option will mature next May, which could make £35,000 profit. Can I transfer some shares to my wife, so she can use her capital gains allowance and then sell all the shares over a couple of years to avoid any capital gains on the profit?
Thanks David B
The short answer is 'Yes you can'.
But for the benefit of other reader's let me first explain what a Save As You Earn scheme (SAYE) is.
An SAYE is a savings-related share option scheme. It gives employees the right – known as an ‘option’ – to buy shares in their company with their regular SAYE savings for a discounted price (up to 20% below the market price) that’s fixed at the start of the scheme.
They can save up to £250 a month under such a scheme out of their take-home pay. At the end of the savings contract (three, five – or sometimes seven – years) they can use the savings to buy the shares.
So you are a member of your employer's Save as You Earn share scheme which is set to mature next May. Assuming you exercise your option and purchase the shares at a discounted rate (as opposed to simply get a return of your scheme contributions plus interest) you will then be liable to Capital Gains Tax (CGT) on any gain you make when you eventually sell the shares. Amazingly you don’t have to pay Income Tax and National Insurance contributions on the difference between the price you pay for the shares when you use your option (i.e. agree to buy the shares) and what they’re actually worth.
But how can you reduce your CGT liability if you do make a gain? Well there are a number of ways which I list below:
- Sell your shares in instalments across several tax years so that you utilise your annual CGT allowance. Therefore any crystallised gains will remain tax-free. The one downside is that this will take time if you have a large gain to mitigate by which point the share price could have fallen.
- Transfer some shares into your spouse's name and use her CGT allowance (inter-spouse transfers are not taxable). By using both of your CGT allowances that will allow you to sell £21,200 (for 2011/12 tax year) worth of shares tax-free.
- Remember to carry forward any past capital losses – If you make an overall capital loss in a tax year year, you should note it on your Self Assessment tax return. Importantly, capital losses which you have declared can be carried forward and used to reduce your capital gains in future tax years. So reducing your potential CGT bill.(obviously you could use a combination of all of the above ideas)
If you want to realise a gain but keep your shares then you could try:
- Transferring shares into an ISA - Shares acquired under an SAYE scheme benefit from special tax rules in relation to ISA's. It is possible to transfer shares up to the value of your annual ISA allowance (£10,680 for 2011/12 tax year) straight into a Stock and Shares ISA. The shares are then not subject to CGT on transfer nor on the eventual sale!! The shares must be transferred within 90 days of exercising the option though.
- Alternatively you could transfer the shares into a Pension. If you transfer shares directly from the SAYE into your pension scheme you will not be liable to CGT. But if you take the shares out of the plan and transfer them later, but within the 90-day limit, you will end up making a capital gain.
Both the ISA and Pension route are subject to you having not already utilised your respective annual contributions limits. For further details see https://www.hmrc.gov.uk/helpsheets/hs287.pdf.
The following are a couple of other tax saving ideas which leave you with your shares at the end of the process but realise capital gains at the same time:
- Bed-and-spousing – In the old days you could sell shares on which you’d made a gain to use up some of your CGT allowance, and then the very next day you’d buy back shares in the same company. This was called bed and breakfasting, but it is no longer possible. Under current legislation you can’t buy back the same shares you sold within 30 days if you want to crystallise a capital gai.. However, your spouse can buy shares in the company you sold. So what you can do is sell shares to realise the capital gain – taking into account your annual allowance, of course – and then your partner repurchases the same assets in their own trading account. This way you keep the assets in the family, essentially keeping you portfolio intact, but you’ve defused the gain.
- Bed-and-ISA-ing – This is the same idea as bed-and-spousing, but this time you re-buy within a Stocks and Share ISA. Purchasing back the same assets in an ISA doesn’t violate the 30-day rule.
As you can see there are numerous clever yet simple ways to mitigate CGT on your SAYE shares, which can be used in isolation or together. But I would suggest that you seek the help of an accountant or tax/financial adviser before doing anything.
I hope that helps