Employee Share Ownership Schemes

The Employee Share Ownership Scheme is an initiative that was unveiled in the March 1999 Budget. It's aimed at encouraging employees to take a stake in the company they work for by offering a number of tax incentives.

An employee will be able to invest up to £1,500 of his pre-tax salary each year to buy shares in the company for which he works. If he holds on to them for three years he'll only be taxed on the amount of salary allocated to those shares.

Any gains that have been made while they're in the scheme will be exempt from Income Tax , Capital Gains Tax ( CGT ) and National Insurance Contributions ( NICs ).

However, if the employee holds his investment for a minimum 10 years he'll receive up to 40% tax relief on that contribution made. The relief applies to each discrete contribution. Which means when you make a contribution in year 2, subject to a maximum £1,500, you'll have to wait until year 11 to get the full benefit of this relief.

Employee Share Ownership Schemes aren't destined to replace existing company pension schemes, but they do offer an alternative tax efficient means of investing.

* New share ownership scheme from April 2000.

Nowadays, all shares held for five years are exempt from both income tax and capital gains tax.

Employees are able to receive shares worth up to £3,000 in their companies, free of income tax. This will give them a tax saving of up to £1,200.

Employees are also able to purchase £1,500 of additional shares from their pre-tax salary - giving a saving of up to £600 a year.

And for workers who do purchase shares, employers are able to award an additional £3,000 worth of shares, another tax saving of up to £1,200.

See Also: Online share dealing service Stockmarket Centre SAYE option scheme

Last Updated: June 2007 © Moneyextra.com

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