HMRC has cut the interest rate paid on all SAYE employee share schemes to zero per cent, which UHY Hacker Young, the accountancy group, says will discourage employees from investing in the companies they work for.
HMRC has been progressively reducing the interest rate employees get on the money they put into share saving schemes. Their latest move cuts the interest rate on seven year share save schemes to 0% from the previous level of 0.58% pa.
The interest rate on money put into all SAYE schemes is now 0%.
Roy Maugham, Tax Partner, of UHY Hacker Young comments: “The Government is supposed to be encouraging employee share ownership, not penalising people with such low interest rates that their SAYE schemes could actually lose value as inflation eats away at it.”
SAYE schemes allow employees to build up monthly savings over three, five or seven years, after which they can withdraw the cash, or use it to buy shares in the company they work for. The eventual purchase price of the shares is fixed in advance, with a discount of up to 20% off their current market value.
If at the end of the scheme, the share price has fallen, employees can decide not to buy shares but get their money back “with interest”. However HMRC has removed all of that interest – even for savers expected to lock their money away for seven years.
Today’s rates differ sharply from those in 2007, when for a 3 year SAYE scheme, the interest rate was 4.23%, for a 5 year 4.48% and for a 7 year , the interest rate was 4.46%.
Adds Roy Maugham: “Although HMRC is told how to set the interest rates on these schemes by a Government set formula there is no reason why the Government cannot change this formula to give savers a sensible deal.”
Roy Maugham says: “By keeping interest rates at zero, HMRC will penalise employees who decide not to exercise their share purchase options, as they will effectively have lost money as inflation will have reduced the value of their savings. Those joining SAYE schemes now will be locked into a savings account that pays zero interest for the next three years, unable to benefit from any increase in prevailing interest rates between now and 2014.”
Roy says that the zero interest compare very badly with other products on the market e.g. ISAs at over 4%, bonds at 3.80% or interest in savings accounts at 3.22%, and it is not an attractive proposition.”