Stockmarket investments: Are you missing out on some free shares?

18th July 2011

Professional advice website Unbiased studied share save schemes and concluded that workers are missing out by not taking advantage of the tax breaks on offer.

There are currently 13,135 companies running tax-advantaged employee share schemes in the UK, which give employees returns free of income tax and National Insurance.

Of the 470,000 staff currently in related share option schemes, if members invested just half of the £1,500 into a Share Incentive Scheme (£750), the total tax saved would amount to £152 million.

The Share Incentive Scheme, which was launched in 2001, is described by HMRC as "the most tax-advantaged all employee share scheme ever introduced into the UK".

Under the scheme employers can give up to £3,000 worth of "free shares" a year to employees free of tax and national insurance.

Employees can also buy up to £1,500 of "partnership shares" from their pre-tax monthly salary or weekly wages, free of tax and National Insurance Contribution (NIC) liability. Employers can then give employees up to two free "matching shares" for each partnership share the employee buys.

Employees who keep their shares in the scheme plan for five years pay no income tax or National Insurance Contributions on profits made on their sale.

Meanwhile employees who take their shares out of the scheme plan after three years will pay income tax and NIC on no more than the initial value of the shares. 

Any increase in value while the shares were held in the plan is free of income tax and NIC liability, as are any dividends reinvested in more plan shares, provided those shares are held for at least three years.

Karen Barrett, chief executive of unbiased.co.uk, says Share Incentive Schemes are a great way of being tax efficient, and an increasing number of companies are offering them each year.  

 "While various share savings options existed before the Share Incentive Scheme, not all employees in a company were eligible to benefit from them.  Employees need to act now to ensure they are making the most of this tax saving opportunity. 

"Meeting an independent financial adviser can help you decide whether a Share Incentive Scheme is suitable for your own financial circumstances.  An IFA can give you advice on the most suitable investment and savings products on the market."

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