Sharesave schemes

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.