Share Save Schemes (SAYE/SIP) transfer to Stocks and Shares ISA

Contributing shares purchased in your employer to an ISA to save tax and use up ISA allowance

With many employers now offering generous employee benefits packages, providing their employees with better ways to grow their long-term wealth might sound like a good idea. UK employee share-ownership schemes, such as a Share Save Scheme (also known as Save As You Earn, or SAYE) or Share Incentive Plan (SIP), are increasingly being used for that purpose. Employees who participate in a share scheme typically face a critical moment when their scheme matures: transferring the shares into a Stocks and Shares Individual Savings Account (ISA) can provide tax advantages and greater investment choices.

Companies’ HR departments can enhance their contribution to the process and deliver greater employee satisfaction – and indeed, better scheme value – by helping their employees to transfer these shares to a Stocks and Shares ISA. The transfer process is governed by precise rules, many of which will not be immediately obvious; for example, for US citizens working in the UK, additional rules apply. Employees can take control themselves to transfer SAYE/ SIP to an ISA using financial advice.

Reasons to Transfer Employer Shares into a Stocks and Shares ISA Makes Sense

A Share Save Scheme, known commonly in the UK as a SAYE or SIP, can allow you as an employee to buy shares in your company at a discount, or to receive shares in a tax-efficient way. You can then sell your shares on at a profit, paying capital gains tax – a tax on the amount by which something’s selling price exceeds its purchase price. After your scheme has run its course, transferring its shares into a Stocks and Shares ISA can give you the following:

  1. CGT-Free Growth: A Stocks and Shares ISA means CGT on capital growth on investments are not taxed.
  2. No Dividend Tax: Dividends paid on shares within an ISA are not subject to Income Tax – one of the ways in which employees can retain more of their returns.
  3. More Investment Options: Aside from company shares, it gives you the option of other stocks, bonds and funds, further diversifying your portfolio.
  4. Use of ISA Allowance: Shareholder employees can move shares into an ISA so as to benefit from the annual tax-free allowance (£20,000 for the tax year 2024/25), without being obliged to sell and repurchase the shares and thereby crystallise a potentially liable CGT event.

Steps HR Can Take to Facilitate Transfers

Moving from a Share Save Scheme or SIP to a Stocks and Shares ISA allows employees to reinvest tax-efficiently and will be a great benefit for them and their employers, particularly if the HR department can assist their employees with suitable financial service providers and if the relevant information, deadlines and documentation requirements for the investing employees is made clear.

However, for US expats in the UK, this transfer is fraught with complications brought on by legislation enforced by the IRS and the possibility that they will be taxed twice. Ensuring access to suitable financial advice experts, and communication on the nuances would really help US employees make informed decisions about their investments.

HR departments play a crucial role in explaining and supporting employees in having their shares transferred to an ISA: Steps of the process:

  1. Employee education: set up information sessions or distribute materials explaining why share transfer to an ISA is beneficial and how to do it, including the tax issues and the rules about SAYE and SIP schemes.
  1. Make Deadlines Clear: Employees have 90 days after the date of exercise (of repayments for SAYE) or release (of the awards for SIP) to transfer the shares into an ISA to take advantage of the tax benefits. HR needs to make sure employees are aware of this essential deadline.
  2. Co-ordinate with Scheme Providers and Brokers: Multiple parties are involved, including the scheme provider and their local brokers. HR can provide further information as needed on how employees request the necessary documents, for instance, a Letter of Appropriation (LOA).

What Happens When Your Scheme Matures?

Employees in schemes of this type – such as SAYE or SIP schemes – will be contacted by the scheme administrator when the scheme matures, and have a choice:

  1. SAYE: Workers may retain shares even at that option price and are otherwise given the option to accept cash. It’s important to compare the option price to the current market price to determine the best course of action.
  2. SIP: Shares are given to employees at the end of the holding period (usually 3 to 5 years) without any taxes levied unless they decide to sell the shares before it ends.

In either case, the employee has 90 days in which to transfer the shares into an ISA and enjoy the attendant tax advantages.

How to Transfer SAYE Shares into an ISA

There are a few ISA providers that can facilitate shares transfers from SAYE or other SIP schemes to an ISA. The procedural steps are usually as follows:

  1. Request a Letter of Appropriation (LOA): Sent by the scheme administrator, it confirms the details of the shares to be transferred. It should include:
  • Employee’s name and address (matching their ISA account)
  • Confirmation that the shares are from an HMRC-approved SAYE or SIP
  • Stock name and number of shares
  • Release date of the shares If an LOA cannot be provided, then an account statement or some other document setting out the same information might suffice.
  1. Transfer Online: the employee’s ISA provider/broker will commence the transfer after the employee has signed a letter of authority using the information contained from section 1 and authoritsing the ISA provider to complete appropriate steps.
  2. Track the ISA Allowance: Allocated shares can count towards the employee’s annual ISA allowance. If the share value is more than the remaining ISA allowance, share allocations in excess of the allowance will have to be transferred into a general trading account.

Special Considerations for US Citizens in the UK

If you are a UK taxpayer, it makes good sense to shift shares into a Stocks and Shares ISA. In addition, a US citizen would also be liable to the IRS, so there are a number of extra issues that need to be considered. HR departments certainly need to be aware of these issues to provide good advice to US-citizen employees working in the UK.

  1. US Tax Implications: ISAs are tax-free in the UK. Unfortunately, this isn’t the case for the IRS. Dividends and capital gains received from the shares held in an ISA are likely to be taxable for US citizens.
  2. FATCA Compliance: US citizens are required to abide by the Foreign Account Tax Compliance Act (FATCA) reporting requirements. These reporting requirements are so onerous that most ISA providers do not accept US citizens. Edale provides financial advice to US/UK citizens and can assist employers if they want to cater to US employees in the UK.
  3. Passive Foreign Investment Company (PFIC) Rules Some investments held within ISAs may be treated by the IRS as PFICs, which means they are given punitive, complicated tax treatment. US citizens are advised to speak to a tax adviser before making any transfers.
  4. Double Taxation Risk: There is a tax treaty between the US and the UK that avoids double taxation, be wary as it does not eliminate the risk of double taxation. US citizens must carefully assess how their investments will be taxed in both countries.
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