Advice on workplace share scheme for saving?

[Frank Grimes]

Looking for a replacement scheme since my SSIA ended.
I dunno what its called, there are two schemes at work one where a bit is deducted weekly and then shares are purchased on your behalf every 6 months at a discount of 15% - its not that scheme! Its the other where your bonuses pre-income tax (which I previously took in cash, taxed at 42%) are used to buy shares with no discount, and then the shares are held for three years after which time you are free to sell, and a bit like the SSIA you are only taxed on (hopefully) any gains made.

I ama bit blinkered so need help to see the light. Am I right in thinking this scheme sounds better than the SSIA, 42% back from the gov. versus 25%? In which case, bugger! should I have been doing this alongside/instead of my SSIA?

If I did sign up for the scheme, it purchases the shares in US dollars. I notice that the euro is, is this good, bad, someting to be cautious of?

 

[ClubMan]

Looking for a replacement scheme since my SSIA ended.
I dunno what its called, there are two schemes at work one where a bit is deducted weekly and then shares are purchased on your behalf every 6 months at a discount of 15% - its not that scheme!

That's normally called an ESPP - Employee Share Purchase Plan.

Its the other where your bonuses pre-income tax (which I previously took in cash, taxed at 42%) are used to buy shares with no discount, and then the shares are held for three years after which time you are free to sell, and a bit like the SSIA you are only taxed on (hopefully) any gains made.

Never heard of such a scheme. Surely your employer can give you more information about this scheme? What rate of tax applies on exit?

I ama bit blinkered so need help to see the light. Am I right in thinking this scheme sounds better than the SSIA, 42% back from the gov. versus 25%? In which case, bugger! should I have been doing this alongside/instead of my SSIA?

If you able to contribute gross income before tax (and PRSI?) deductions then you would be getting relief of up to 48% (42% tax and 6% PRSI/health levy) which would indeed make it a lot more attractive than the SSIA. I find it hard to believe that such a scheme exists. Are you sure that you're not mixing it up with something else? Even a pension scheme?

 

[Berni]

I find it hard to believe that such a scheme exists. Are you sure that you're not mixing it up with something else? Even a pension scheme?

They do exist, normally called ASPP, Approved Share Participation Plan.
You can put pretax money in up to a certain limit, I think about €12,000.
Shares are purchaed at full market price.

You can't cash out within 2 years, between 2 - 3 years you can but you have to pay the original income tax, after 3 years, the money is tax free, and all you will be liable for is capital gains.


Edit: This revenue doc on profit sharing schemes covers it [broken link removed]

 

[ClubMan]

OK - I stand corrected so I guess.

Is that CGT at 20% because isn't there still a special rate of 40% which applies in certain circumstances?

 

[Berni]

The CGT is 20%.
Once you pass the 3 year mark, the shares are transfered into the employee's name, and there is no further special treatment of them.

 

[polar]

I've been a participant in this sort of scheme and liked it very much. Here's why.

Say your pre-tax bonus is EUR1000. You take it in cash and pay 42% tax on it. You receive EUR580. End of story.

OR

You elect to take your bonus as shares and hold them for 3 years. You buy EUR1000's worth of shares and hold them.

After three years, the shares are worth (say) EUR1200. You sell them, your bonus is now worth EUR1200 to you and your profit for CGT purposes is EUR200, which is well under your annual EUR1270 CGT-free entitlement, so you get to keep your EUR1200.

OR

After three years, your shares have gone down in value and are now worth (say) EUR800. You sell them at this price and have a technical capital loss of EUR200, which you can offset against other capital gains and you are still ahead of the EUR580 you would have got if you had taken the bonus in cash.

The dollar values could mess things up a bit, but no-one knows for sure where that is going over the next three years (though "down" would probably be the consensus view). The thing is, your investment still has to lose 42% of its value before it looks bad next to taking your bonus in cash.

 

[ClubMan]

Interesting - so in answer to the original poster I guess it certainly does look like this is could be better than the SSIA scheme allowing for the inherent risks in investing in a single share? One drawback in my opinion is that one is putting two eggs (job and investments) in one basket (your employer). Enron and all that...

Does this scheme only work with bonuses or is that a bit of a red herring?

 

[Frank Grimes]

Thanks for the replies,
As far as I understand, you can nominate a certain amount to be deducted from each paycheck but I believe, I could be wrong, that this amount cannot exceed the contribution to the scheme from bonuses.
I intended to contribute a small amount of say €75 a month so that overall sum more or less matched my ssia contributions. I suppose I'm a bit wary of the eggs in one basket idea. The exchange rate moving as well as natural share fluctuations are the risks. I do contribute to the other ESPP scheme but in that case I take the money and run and don't keep the shares as the payout seems to be coincide with motor insurance and post Christmas bills

FG

Interesting - so in answer to the original poster I guess it certainly does look like this is could be better than the SSIA scheme allowing for the inherent risks in investing in a single share? One drawback in my opinion is that one is putting two eggs (job and investments) in one basket (your employer). Enron and all that...

Does this scheme only work with bonuses or is that a bit of a red herring?

 

[zephyro]

As far as I understand, you can nominate a certain amount to be deducted from each paycheck but I believe, I could be wrong, that this amount cannot exceed the contribution to the scheme from bonuses.

Yes, if you take your bonus in shares you can also invest money (tax free) from your salary up to the value of the amount of your bonus invested in shares.

 

[polar]

Where I work, there are two separate schemes:

1. Regular savings out of paycheque (salary forgoing). Shares are bought at full price out of post-tax income, often at a reduced cost - you must then pay tax on Benefit in Kind on the difference between the actual cost of the shares and that reduced cost. You can sell the shares whenever you like and pay the CGT as appropriate. This can, of course, work out well if the share price goes up, but it really hurts to have paid tax on the BIK if the share price goes down.

2. Shares bought with bonuses - this is the hold-for-3-years-and you-pay-no-income-tax scheme. I don't believe you can participate in this scheme with regular savings from your salary.

Frank, be sure you understand which scheme you are signing up for, or how each works if you are going to take part in both.

 

[zephyro]

2. Shares bought with bonuses - this is the hold-for-3-years-and you-pay-no-income-tax scheme. I don't believe you can participate in this scheme with regular savings from your salary.

Where I work if you purchase shares with your bonus you can also invest tax-free up to the same amount in regular savings over the following months, sounds like what Frank is talking about.