UK SAYE Tax Efficient Example
How you can be tax efficient following the exercise of an UK HMRC SAYE option.
Mr Smith has been saving £250 per month for 5 years (60 months), with an option in ABC plc at an option price of £1.00, which he will be allowed to exercise after a set period. Share price on exercise is £2.00.
Savings to share calculation
Total Savings (£250 x 60) = £15,000
Total Shares available from Option (£15,000 / £1.00) = 15,000 shares
| Scenario A – No Tax Planning | Scenario B – Tax Planning | |
|---|---|---|
| Number of shares | 15,000 | 15,000 |
| Shares transferred to an ISA | ||
| £7,200 Stocks and Shares ISA = 3,600 (£7,200 / £2.00) | 3,600 | |
| Transfer half of remaining shares to Mrs Smith | 5,700 | |
| Shares remaining in Mr Smith’s name | 15,000 | 5,700 |
| CGT Calculation | ||
| Proceeds if non ISA shares sold at £2.00 (see Scenario B bubble below) | £30,000 | £22,800 (11,400 non ISA shares sold) |
| Proceeds if shares sold in ISA at £2.00 (Free of CGT) | £ 7,200 | |
| Total proceeds | £30,000 | £30,000 |
| Less cost of shares (15,000 x £1) | (£15,000) | |
| (11,400 x £1) (Non ISA shares for CGT calculation) | (11,400) | |
| Profit liable to CGT from shares sold | £15,000 | £11,400 (£22,800 - £11,400) |
| Less Annual Exemption (Employee's and Spouse's in Scenario B) | (£9,600) | (£19,200) |
| Net gain liable to CGT (All shares sold) | £5,400 | Nil |
Scenario A - Single CGT rate is charged at 18%
Scenario B - The shares transferred to an ISA and to a spouse can be sold at the same time, obtaining the same price, to raise the same total proceeds as Scenario A. In this scenario no CGT will be liable as the ISA sale will be free of any CGT and the proceeds from both sales will be less than the respective seller’s Annual Exemption. You should note that this approach will exhaust your entitlement to invest in an ISA in that tax year.