Out-Law News 1 min. read
07 Sep 2011, 3:16 pm
Savings providers received notice of the changes to bonus rates last month. The new rates are applicable where the invitation to enter into the SAYE savings contract was made from 23 September 2011 onwards.
SAYE is an HMRC-approved all-employee share option scheme that can be offered by employers to their employees. Participating employees make a fixed monthly payment of between £5 and £250 into an authorised savings arrangement over a period of three or five years. At the end of the contract period employees can use the savings, and any bonus, to buy shares in their employing company or receive a tax-free payment. Banks and building societies offering saving arrangements must be certified by HMRC.
The share option is normally only exercisable after a period of three, five or seven years and shares may be granted at a discount of up to 20% below the market value of the shares at that time. No tax is charged on the grant of the share option and no income tax will be charged on any profit made when the option is exercised in most circumstances.
The bonus rates for five and seven year savings contracts have fallen, with the rate for three year contracts remaining at 0% (from 12 August 2011). Savers with three or five year savings contracts will no longer be entitled to a bonus at the end of their contract, while those who have entered seven year contracts will now receive a bonus of 0.58% of their annual investment.
Savers who leave a SAYE scheme early are also no longer entitled to a bonus on any savings repaid (from 12 August 2011).
SAYE bonus rates reflect market swap rates, and are reviewed on the occurrence of certain 'trigger' events in accordance with the mechanism set out on HMRC's website. The previous rates came into effect on 12 August 2011.
Lynette Jacobs, an expert in share plans with Pinsent Masons, the law firm behind Out-Law.com, thought that despite the reduced bonus rates, SAYE schemes still offered some advantages.
"SAYE can still deliver value through rising share prices and where options are granted at a discount as permitted under the legislation," said Jacobs. "It is to be hoped that employers and employees will continue to recognise the potential of SAYE to deliver value in this way, combined with the beneficial tax treatment."
Employees who are already saving under existing SAYE contracts will not be affected by the rate changes.