ESOPS – Employee Stock Ownership Plans – Taxability

Last Friday, I had shared the basics of taxability of ESOPs in the UK in the Learning and Development Group, and on Saturday in our blog.

In UK these work based on preapproved plans. I had listed the following plans.

–Share Incentive Plans

–Save As You Earn Schemes

–Company Share Option Plans

–Enterprise Management Incentive Schemes

Share Incentive Plans (SIPs) – If you get shares through a Share Incentive Plan (SIP) and keep them in the plan for 5 years you won’t pay Income Tax or National Insurance on their value.

You won’t pay Capital Gains Tax on shares you sell if you keep them in the plan until you sell them.

If you take them out of the plan, keep them and then sell them later on, you might have to pay Capital Gains Tax if their value has increased.

There are 4 ways you can get shares under SIPs.

–Free shares – Your employer can give you up to £3,000 of free shares in any tax year.

–Partnership shares – You can buy shares out of your salary before tax deductions. There’s a limit to how much you can spend – either £1,500 or 10% of your income for the tax year, whichever is lower.

–Matching shares – Your employer can give you up to 2 free matching shares for each partnership share you buy.

–Dividend shares – You may be able to buy more shares with the dividends you get from free, partnership or matching shares (but only if your employer’s scheme allows it). You won’t pay Income Tax if you keep the dividend shares for at least 3 years.

You’ll have to pay Income Tax and National Insurance on any shares you take out of a SIP early.

Will continue with this in the next Friday update…