Sharesave, also known as Save As You Earn (SAYE), is an all employee tax-advantaged share scheme, approved by HMRC. They provide companies with the opportunity to share company ownership with employees as part of their remuneration package. As the taxation and treatment of these plans can change it’s important to stay abreast of what’s current.
Sharesave: What is it?
In short, a Sharesave scheme is an agreement that allows an employer to regularly deduct an agreed savings amount from an employee’s net salary. Sharesave can be split into two parts. The first part is a savings contract, where employees save a fixed monthly contribution between £10 to £500, for either 3 or 5 years, depending on the company rules. The second part is, at the end of the savings contract, known as maturity, the participant has the option to buy shares at a discounted share price. This price is agreed at the start of the plan. We will delve deeper into the specifics of the Sharesave scheme rules later.
If the share price on maturity is more than the discounted share price, the participants can make a profit on selling the shares, and if the share price is below the discounted share price the participant can get their monies back. There is no obligation to buy the shares.
For employees, Sharesave can be seen as being very low risk, because even if the share price goes down they can get their money back, currently with interest paid after 12 months of savings.
For employers, Sharesave can act as a reward and retention tool. It can help to motivate employees to work harder and hopefully see the share price increase, while encouraging them to remain with the company for the during the duration of the plan.
Recent changes affecting Sharesave schemes
The interest earned on Sharesave Plans is affected by the Bank Base Rate agreed by the Monetary Policy Committee of the Bank of England, and in November 2024 this meant a change to the 3-year and 5-year bonus rates for new Sharesave Plans. Any existing Sharesave Plans will use the bonus rates agreed as at the grant date, it will only be new plans that will use the updated interest and bonus rates.
Changes to the rate of Capital Gains Tax (CGT) rules can also impact participants if their gain is over the CGT Allowance, currently £3,000 for tax year 2024/2025.
9 Sharesave scheme rules and design items
- Length of the scheme
- Employee eligibility
- Exercise price / Option price
- Participants’ contributions
- Invitation period
- Exercise period
- Suspension of contract allowed?
- Monthly contribution allowed?
- Termination provisions
#1 Length of the scheme
Sharesave participants enter into a savings contract that can be either 3 years or 5 years, agreed by their company, meaning they will make 36 or 60 monthly contributions.
Studies show that millennials switch jobs on average every 2.75 years, so a 3 year plan can help engage with this demographic. Depending on your own business’ needs and goals however, a 5 year plan might suit better.
#2 Employee eligibility
You can decide how long employees have to be with you before becoming eligible to be invited to join a Sharesave scheme. You do not have to have an eligibility period, therefore all your employees are invited, or you can stipulate any period up to a maximum of 5 years. Some employers will add a restriction requiring new employees to first complete their 6 month probation before they become eligible to join the plan.
#3 Exercise price / Option price
The option price (also known as exercise price) is the price paid by participants to purchase the shares on maturity.
The option price can be discounted by up to 20% of the share price at the time the invitation is sent.
It’s common to see companies offer the maximum discount to make the option price as low as possible (i.e. 20% discount) to boost the enrolment rates.
Additionally, employers may qualify for corporation tax relief on the difference between the market value of the shares at the date of exercise and the option price.
#4 Employee contributions
The current monthly savings for contributions by participants, i.e. your employees who partake in the plan, must be between £5 and £500. Employers can set their own limits, but they must be within this range.
This decision will ultimately come down to how many shares you have available to grant and you will need to consider how your rules impact the attractiveness of your Sharesave scheme.
Note: If employees are paid weekly, their contributions can also be made weekly by deduction from their pay, but cannot breach the monthly limits.
#5 Invitation period
Before launching your Sharesave, you’ll need to communicate the plan to all eligible employees, explaining how the plan works, the different rules associated with it and give them 2 to 3 weeks to join online, usually through a dedicated portal, like the one offered by Workplace Solutions.
Make sure the enrolment deadline is clearly communicated and employees have enough information and time to understand the plan.
#6 Exercise period
Sharesave options are exercisable for 6 months after maturity.
On maturity, participants normally have a minimum of two choices:
- Purchase the shares at the discounted option price, known as exercising your option. On exercising, companies may choose to provide a sale option and transfer to spouse/civil partner, but will differ between companies.
- If the option price is below the current market share price at that time, the participant can request their savings and bonus is paid into their bank account. The option to buy the shares will lapse 6 months after maturity.
#7 Missed contributions
Sharesave rules allow employees to, at present, skip up to 6 monthly payments or delay up to 12
monthly contributions, but for every missed payment, the maturity date is pushed out by a month. As
this information is subject to change you should check with your Sharesave provider for the current
details.
Missed, or skipped, payments cannot be made up at a future date. Where the number of premium
payments missed exceeds the plan limit then the options are forfeited. In this instance employees will
need to receive their savings and any bonus paid into their bank account, without the option to buy
shares.
#8 Changing monthly contribution
Changes to monthly payments are not allowed under HMRC rules.
#9 What if participants leave the company?
There are different rules depending on the reason for leaving. If a participant leaves due to
retirement, injury, sickness, redundancy, often known as a ‘good leaver’, they can exercise the shares
within 6 months. If a participant leaves due to resignation or dismissal their option to buy the shares
will lapse, however they may be able to have their savings returned with interest where applicable
What next?
At J.P. Morgan Workplace Solutions, our equity management software together with our professionals have helped businesses implement and administer their Sharesave (SAYE) plans from launch through to maturity. We can help streamline the process of handling employee data, enrolment, managing contributions, task tracking, reporting, tax and compliance and everything in between.
If you’d like to see for yourself how we could help your company, book a one-on-one, no-obligation consultation with one of our team today.
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This publication contains general information only and J.P. Morgan Workplace Solutions is not, through this article, issuing any advice, be it legal, financial, tax-related, business-related, professional or other. J.P. Morgan Workplace Solutions’ Insights is not a substitute for professional advice and should not be used as such. J.P. Morgan Workplace Solutions does not assume any liability for reliance on the information provided herein.