Budget:Share Save Schemes

TO ENCOURAGE more UK employees to back their employers, the Chancellor plans to unite the existing popular Save As You Earn Share Save scheme and companies' Profit Sharing schemes to form an alternative tax shelter.

SAYE schemes, which are already offered by 75 per cent of Britain's biggest companies, allow employees to save regularly, and then use the proceeds to buy shares at a discounted price set at the outset.

Profit-related pay has now disappeared, but companies can still incentivise staff through profit-sharing schemes which involves giving shares to the workforce, tax-free provided they are held for three years.

Under the Government's proposals, employees could use pounds 1,500 from pre- taxed income to buy shares in their company. In effect, this would cost a basic rate taxpayer only pounds 1,155, and a higher rate taxpayer pounds 900.

Any gains arising on the shares while they are held in the scheme will be tax-free after three years. When they are cashed in, they will be subject to tax on the salary used to buy them. But this will taper off to zero after 10 years.

Employers will be able match whatever the employee saves with twice that amount in free shares.

PricewaterhouseCoopers spokesman, Sandy Pepper, says: "You could argue this is a risky strategy, putting all your eggs in one basket; if the firm goes bust you lose your job and your savings and everything.

"But the reality is that employees do very well out of these schemes, and the risks are low."

Teresa Hunter