SAYE, CGT And EQi’s Flexible ISA

In November’s Autumn Statement, the Chancellor of the Exchequer announced that the government is making changes to simplify ISAs and provide more choice, meaning it will be easier for people to choose the best ISA accounts for their needs and move money between them.

Where a SAYE scheme is going to make a healthy profit, what choices do employees have to maximise their investment?

SAYE and CGT – Buying shares under an SAYE option (‘exercising the option’), and then selling those shares is a chargeable event for CGT purposes. HMRC statistics show average SAYE gains are over £3,000, so employees need to have information about CGT and their choices so that they don’t pay tax unnecessarily.

 There are several ways of reducing CGT liabilities including:

• Using the CGT Annual Exempt Amount and considering selling shares over consecutive tax years.
• Transferring shares to a spouse or civil partner so they can use their CGT Annual Exempt Amount.
• Immediate transfer to a registered pension scheme (with the benefit of additional tax relief).
• Transferring shares to an ISA from a SAYE plan where shares can be held or sold without CGT being applicable. The ISA allowance for 2023/24 is £20,000. Special rules apply to SAYE plans that mean that the transfer doesn’t count towards CGT, if shares are transferred within 90 days of exercising the option. Shares are valued using their market value at transfer and this counts towards the annual ISA allowance. Where the 90-day period straddles the end of a tax year, two years’ ISA allowance would be available.
• Transferring shares to a ‘flexible ISA’ from a SAYE plan has similar features with additional freedom to take out cash and replace it in the same tax year without affecting the current year’s allowance. In practice this means participants can put shares into a flexible ISA, sell them, remove the cash, and then replace them with any remaining SAYE shares. This process can happen numerous times within the permitted 90-day period.

• Example: You exercise your SAYE option and pay £10,000 for the shares. On the day that you buy those shares the market value is £25,000, a gain of £15,000.
• Your flexible ISA allowance is £20,000 and you put £20,000 of shares into a flexible ISA.
• You then sell some shares and withdraw £5,000.
• You can then transfer the remaining shares with a value of £5,000 into the flexible ISA within the same tax year with no CGT liability if it’s within the permitted 90-day period.

What are we seeing?

Where there are gains on SAYE schemes that we administer, EQ can provide participants with various choices at maturity. These choices include: keeping shares, selling shares, transferring shares to their spouse/civil partner, or transferring their shares into an EQi ISA. We usually see about 3% - 5% of participants transferring shares into an ISA directly following their exercise of option. More recently, with some schemes seeing larger gains at maturity, plus the reduction in the CGT Annual Exempt Amount, transfers directly into an ISA have soared and in some cases are above 50%.

How can EQi’s flexible ISA work for your employees?

We are one of the few providers to offer a flexible ISA. It means that with an EQi ISA, employees have the freedom to withdraw money, and pay it back in the same tax year, without it counting against the annual £20,000 ISA allowance. Once employees have transferred shares to the ISA, they have a choice of keeping them, selling them to receive cash (and replacing with further shares if needed), or selling them and using the cash to diversify by investing in companies from around the globe and in funds which offer a basket of ready-made investments. 

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