Sharesave schemes

Yes. While you're saving in to the scheme, your cash will go in to a bank account or building society account, and will have the standard £120,000 protection per person per financial institution that normal savings enjoy.

So, provided your sharesave scheme balances combined don't add up to more than £120,000, and they're the only savings you have with that building society, bank (or banking group), they will be safe, protected by the Financial Services Compensation Scheme.

However, if you choose to buy shares at the end of the scheme and plan to hold on to them, the protection is different. It then becomes a 'risk-based investment', NOT savings and the FSCS protection is different...

Investor protection is about providers going bust, not you losing money

The £85,000 FSCS investment protection applies if you lose money due to the product provider of the investment going bust – for example, if you've bought shares and the company you hold those shares in (whether it's a general investment account or a stocks & shares ISA) goes bust.

Yet in many cases if you're buying shares or funds through a company – eg, some stockbrokers just sell you shares – the fact the stockbroker went bust wouldn't actually matter. You'd still own the shares, so there'd be no compensation.

But, if you've got shares in your company through a sharesave scheme, and then your company goes kaput, then generally there's no safety net to fall back on and you'd lose all your money – that's the nature of investing.

If 'too many' people apply to join a particular year's scheme or the amount they've opted to save is more than your company had planned, it may do what's known as a 'scaling down'. This can happen because companies tend to set aside a limited number of shares that can be bought at the option price at the end of the scheme.

If this happens, the amount you can save each month (and ultimately the number of shares you can buy) will be 'scaled down' – your company will tell you about the new amount you can save.

If your circumstances change you can suspend payments for up to 12 months during the scheme (though you'll still need to make the full three or five years-worth of payments for the scheme to end and for you to have the option to buy shares). It's best to do this if you think you'll get back in to a position to resume payments in a few months' time.

However, if you think the change in your finances is likely to be permanent, you can choose to stop paying in to the scheme at any time and take out any money already saved.

In general, you need to contribute to your sharesave account directly through your employer's payroll.

But, if you're on parental leave, a sabbatical, or temporarily seconded to another company, you can arrange to pay contributions by standing order.

If you need to do this, contact the bank or building society which runs your sharesave scheme to get the standing order details you need.

In general, you won't be entitled to buy the shares as you've left the company. However, you will be able to get every penny of the cash that you've saved in to the scheme back.

There's one exception to this – if you've been saving in to a scheme for more than three years, you can buy shares within six months of leaving. This is provided you weren't sacked for misconduct.

Slightly different rules apply if you've left the company for one of the following reasons:

• Redundancy

• Retirement

• Injury or sickness

• Your company's taken over or merged with another

In these cases, you'll usually be able to buy a reduced number of shares at the option price within six months of leaving. You'll also be able to add up to six months' contributions to increase the amount of money available for you to buy shares.

If either of these apply to you, contact your old company or the sharesave administrator (the bank or building society that runs your sharesave scheme) for full information on your options.

It's not a nice thought, but what happens will depend on whether you die during the scheme, or after it's ended.

If you die during the scheme, your 'personal representative' (usually the executor of your will, or your next of kin) will be able to buy shares at the option price within 12 months of your death, if they choose to. Otherwise, they'll be able to take the amount you've saved into the scheme so far as cash and add it to the value of your estate.

If you die after the scheme has ended, your personal representative will have 12 months from the date of your death to buy the shares at the option price, if they choose to. Again, there's no obligation and they can take the cash.

Note that sharesave cash or shares could be subject to inheritance tax.

While there's no income tax or national insurance charged if you buy shares (even if they are worth more than the price you pay for them), you could pay a couple of other taxes on your shares. Whether you need to pay these depends on whether you sell the shares or keep them in the hope they'll enjoy (further) investment growth. The two taxes you could face are:

• Capital gains tax (CGT). If your company's share price has done exceptionally well, and you saved a lot into the scheme, you may face capital gains tax if you choose to sell the shares.
  
  CGT is a tax you have to pay on the gain you make when selling things such as shares, a second home (you usually don't pay capital gains on selling your main home) and jewellery. This example shows how it could work for a sharesave gain...
  

  Sophie Shareholder bought £5,000-worth of shares at her company's £2 option price. Yet, the company has done very well since the sharesave scheme started three years ago, and the market price of the shares is now £4. Sophie sells her shares for £10,000, and so makes a £5,000 profit (this £5,000 is her 'capital gain').
  
  Yet, in the example above, Sophie doesn't actually need to pay tax on the whole £5,000 profit she's made. It's important to understand that she (and all of us) have a capital gains allowance of £3,000 before we have to pay tax. So, in the example above, only £2,000 of the gain Sophie made would be taxable if she sold all of the shares (assuming she'd not made other capital gains in the same tax year selling other shares or property).
  
  If you do need to pay capital gains tax on sharesave gains, basic-rate taxpayers will pay 10%, and higher- and additional-rate taxpayers will pay 20%.
  

• Dividend tax. You may pay this if you hold on to the shares and your company chooses to pay a dividend to shareholders that year. A dividend is essentially a share of the profit that company has made that year.
  
  And while each person has a £500 annual dividend allowance, if dividends paid out from your sharesave shares, combined with any other dividends you receive from other shares, take you above that limit, then you'll need to pay tax at 8.75% if you're a basic-rate taxpayer, or 33.75% if higher rate and 39.35% if additional rate.

There are a few (legal) ways you can avoid these taxes...

Even if you are affected by these taxes, there are a few things you can do that mean you won't have to pay them:

• Put your sharesave shares in a stocks & shares ISA. If you have some or all of your £20,000 annual ISA allowance left when your sharesave scheme matures, then you can choose to put your newly acquired shares in to a stocks & shares ISA (assuming your ISA provider allows it - always check).
  
  Provided you do this within 90 days of buying the shares, you'll no longer have to pay capital gains tax (if you choose to sell the shares) or dividend tax (if you choose to keep them).
  
  It's best to check with your ISA provider how to do the transfer if you plan to do this.
  

• Put the shares in to your pension. You're also able to move shares in to a self-invested personal pension (SIPP) to avoid any potential taxes, but here you'll need to do so directly from the scheme immediately after you buy them. If not and you move them later, you could end up paying some capital gains tax if they go up in value between the date you buy them and the date you transfer them.
  

• Sell your shares across two (or more) tax years. As we said above, every UK taxpayer gets a £3,000 capital gains allowance each tax year (which runs from 6 April to 5 April the year after).
  
  In the example above, you could choose to sell £6,000 of the shares in one tax year (fully using your CGT allowance by realising £3,000 profit) and the remaining £4,000 in the next tax year (realising a £2,000 profit if the share price stayed the same) and all sales will be covered by your allowances - assuming you don't sell other assets subject to CGT in the same tax year(s).
  
  Of course, as you'll be holding on to some of the shares for a longer period, they may go down (or up) in value during that time period, which would affect the amount you could sell them for.
  

• Transfer some of the shares to your spouse or civil partner. You can make a 'gift' of some of your shares to your spouse or civil partner before you sell them. In this way, you can combine your CGT allowances and realise a profit of £3,000 each (£6,000 in total) before you have to pay tax. Additional shares could be sold in the following tax year (or you could choose to pay the capital gains tax due)
  
  Similarly if you keep the shares, your partner also has a £1,000 annual dividend allowance, so if the shares do pay dividends, this could be another way to cut that tax bill.

Yes. Just because you've entered in to a scheme doesn't mean you need to complete it – your money's not locked away.

So, just as if you needed your cash for an emergency, or because your circumstances changed, you can decide to stop paying in to one sharesave scheme and take all the money out, and devote the cash to the next year's scheme. The only limit is that you can't contribute more than £500/mth across all the sharesave schemes you're enrolled in at the same time.

However, just because the option price of the second scheme is lower doesn't automatically mean that scheme is going to be a better deal.

None of us know the future – and it may be that your company's share value peaks around the time the first scheme ends, and is much lower when the second year's scheme ends. So, even though the option price of the second scheme was lower, there are scenarios where the first scheme could make you more money.

In general, yes – just head to the sharesave administrators platform (or your own investment account or stocks & shares ISA if you've moved the shares) and hit sell.

The only time you might not be able to buy and sell at will is if you're on what's known as an 'insider list' at your company. You'll likely know if you are on one, but in some cases, this limits your ability to sell shares in your own company at certain times (though usually this happens at senior levels where you also get shares as part of your pay).

Generally this is done because you might have information as part of your job which can affect your company's share price – for example, recent bad sales results which would send the share price down, or info about a new product launch which will send it soaring. If so, your company may limit the amount you can trade, or when you can trade. If you're not sure whether this applies to you, check with your company's HR, investor or legal department.

In general, we'd always suggest first-time buyers look at Lifetime ISAs as a first step. These ISAs let you pay in up to £4,000 each year, then give you a 25% bonus from the state on whatever you've managed to save, up to a max £1,000 per year.If you've extra to save each month then you could consider using a sharesave scheme. However, there are pros and cons:

If your company's shares do well, then sharesave is likely to beat any normal savings account.

You save directly from your paypacket so there's no temptation to spend the cash rather than save it as it's never in your pocket.

If you just end up taking the cash, and there's no or just a small bonus paid, then you would have been better off saving in to a normal savings account or investing outside of a sharesave scheme.

To have the chance to get the most out of the scheme, you'll need to save for the full three or five-year term (though you can take your savings out as cash sooner if you find a place you want to buy before that)

Consider whether sharesave is going to be the right place to save, or whether you want the certainty of a Top Savings Account.

If you've been offered shares as a bonus or as part of your usual pay, then these are offered under a different scheme – usually a conditional share award plan or enterprise management incentive (EMI) plan. In general, conditional plans rely on you hitting certain goals or targets to get the bonus and EMI plans are only offered by start-ups or smaller companies. If you're not sure about what you've been offered, ask your employer's HR or payroll department.

Sharesave plans are different in that they have no link to your performance in the job. Each employee can access sharesave schemes under the same terms, whether they're entry level, a middle manager or even the CEO.

Of course, while taking part in the sharesave scheme isn't dependent on whether you do a good (or a bad) job, but the better you and your colleagues do, the more likely the share price is to rise and make you a profit on the sharesave scheme.

You may also have been offered a share incentive plan (SIP) as an employee benefit. These plans let you buy shares in your company on a monthly basis up to a certain limit each year. The advantage of these schemes is that you buy shares from your pre-tax salary, so you save on tax and national insurance.

However, unlike sharesave plans, you buy the shares each month rather than at the end of the scheme, and you pay the market rate for the shares at that point – there's no option price or discount. There are also tax advantages to SIPs in that you don't pay capital gains tax on the increase in value. And if you hold the shares for five or more years without selling, you won't pay income tax or national insurance either.