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New Bonus Rates For SAYE Schemes Announced

by Jason Gorringe, Tax-News.com, London

03 September 2007


The UK Treasury on Friday announced changes in the bonus rates for the Save As You Earn (SAYE) (Sharesave) scheme, that will maintain SAYE in line with other interest rates.

SAYE is one of four tax-advantaged schemes administered by HMRC, and is part of the Government's initiative to promote wider employee share ownership across the UK.

The bonus rates were last changed on 1 September 2006. The new bonus rates from 1 September 2007 will be:

  • For a 3 year contract, the bonus rate will be 2.4 times the value of the employee's monthly payments (up from 1.8 x previously), with an effective interest rate of 4.23% (up from 3.19% previously);
  • For a 5 year contract, the bonus rate will be 7.2 times the value of the employee's monthly payments (up from 5.5 x previously), with an effective interest rate of 4.48% (up from 3.46% previously);
  • For a 7 year contract, the bonus rate will be 13.3 times the value of the employee's monthly payments (up from 10.3 x previously), with an effective interest rate of 4.46% (up from 3.52% previously).

Employees who sign up to SAYE will receive the bonus rate for the relevant contract that was in force at the time they joined the scheme. They will not be affected by future bonus rate changes.

SAYE is a savings vehicle for employees of companies that operate savings related share option schemes that are HMRC approved.

The company offers its employees the option to buy shares in the company at a future date. The option may be granted at a discount of up to 20% of the current share price.

The employee then saves between GBP5 and GBP250 per month out of taxed pay on a 3 or 5 years saving contract. The 7-year contract, also available, is actually an extension of the 5-year contract where the employee leaves the contributions in for a further two years.

When the contract matures, a tax-free bonus is received. The employee can then choose either to exercise the option to buy shares with the proceeds from the savings contract and normally the bonus, or just to take the proceeds and the bonus.

The bonuses are equivalent to a fixed rate interest and are set by HM Treasury. No income tax or National Insurance Contributions are normally incurred on the grant or exercise of options. However, there can be an income tax charge on exit, if this occurs within 3 years of grant in circumstances other than redundancy, retirement, injury, disability or death.

SAYE schemes are operated for companies by banks, building societies, or European Authorised Institutions, which must first be authorised by HM Treasury.


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