UK employees miss out on tax breaks by ignoring share schemes

UK employees will miss out on a staggering £184 million of tax breaks this year, by failing to utilise the most tax-efficient employee share schemes, reveals Unbiased.co.uk, the website promoting the benefits of independent financial advice.

There are currently 9,570 companies running a tax-advantaged employee share scheme and of these 760 are New Share Incentive Schemes, which give employees returns free of income tax and National Insurance.

If the 560,000 staff currently in another type of savings related share option scheme invested just £1,500 each in a Share Incentive Scheme (just half of the maximum investment) the total tax saved would amount to £184 million.

David Elms, Chief Executive of Unbiased.co.uk, commented, "Share Incentive Schemes are a fantastically efficient way of keeping your money safe from the taxman, and with more and more companies now offering them, workers should make sure they are making the most of this tax saving option. As there are many different options available, we suggest you see an independent financial adviser to help you decide whether a Share Incentive Scheme is suitable for your circumstances. An IFA can give you the best advice based across all available savings products on the market."

The New Share Incentive Scheme, launched in 2001, is described by the HMRC as "the most tax-advantaged all employee share scheme ever introduced into the UK". The main features of this scheme are:

Employers can give up to £3,000 worth of "free shares" a year to employees free of tax and national insurance.

Employees can buy up to £1,500 of "partnership shares" from their pre-tax monthly salary or weekly wages, free of tax and National Insurance Contribution liability.

Employers can give employees up to two free "matching shares" for each partnership share the employees buy.

Employees who keep their shares in the scheme plan for five years pay no income tax or National Insurance Contributions on profits made on their sale.

Employees who take their shares out of the scheme plan after three years will pay income tax and NIC on no more than the initial value of the shares. Any increase in value recorded while the shares where held in the plan will be free of income tax and NIC liability. As will be any dividends reinvested in more plan shares, provided those shares are held for at least 3 years.

For more information on self-assessment and avoiding tax waste, visit IFA Promotion's dedicated website at taketaxaction.co.uk. The site contains tips on how to save tax, an online tax wastage calculator, and a guide to saving tax. You can also find details of local IFAs on the site.