9 May 2011
- 17% rise on tax savings last year
Employees who participate in employee share schemes are set to make a tax saving of £870 million this year, a 17% rise on the amount of tax saved last year, according to our calculations.
The rising value of company shares following the slump in values during the recession is making share schemes increasingly valuable, and therefore attractive, to employees.
Approved share option schemes are popular with employees because they are entirely tax and National Insurance free up to the point of exercise. Any further gain arising after the end of the plan is liable to Capital Gains Tax.
Despite the increasingly valuable tax benefit of these schemes, the number of companies offering employees shares has declined as employers have focused on cost cutting.
Tax savings from employee share schemes
| 2009/10 | 2010/11 | |
|---|---|---|
| Share incentive plan | £320m | £375m |
| Save As You Earn | £170m | £225m |
| Enterprise Management Incentives | £170m | £190m |
| Approved Company Share Option Plans | £85m | £70m |
| Total | £745m | £870m |
The number of companies running share schemes open to all staff has declined by 10% over the last two years from 1,530 in 2006/07 to 1,370.
Meanwhile, the number of companies offering shares to senior level staff has jumped by 25% over the same period, from 8,020 to 10,050.
Roy Maugham, partner in our London office, comments: “Despite the decline in the number of employers offering shares, rising share values and an increasing tax burden are combining to make shares much more attractive to employees.”
“With National Insurance Contributions having risen by another percent in April, and the threshold for the higher rate of income tax frozen, the potential tax saving from investing in company shares, and the cost to the Treasury, is increasing.”
He adds: “In many cases share options became worthless during the recession as the value of shares fell beneath the exercise price. This put many employees off investing in shares, but with values now recovering, interest in schemes is reviving.”
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