What is Save As You Earn (SAYE / Sharesave)?

SAYE (Sharesave) is a tax-advantaged all-employee share scheme. Employees save £5-£500 per month for 3, 5, or 7 years, receive a tax-free bonus, and can use the savings and bonus to buy shares at a discounted price. Save As You Earn (SAYE), also known as Sharesave, is a tax-advantaged share scheme available to all employees of a qualifying company. How it works: (1) Savings contract — employees enter into a savings contract, saving a fixed amount each month (between £5 and £500) for 3, 5, or 7 years. (2) Bonus — at the end of the savings period, employees receive a tax-free bonus, calculated based on the savings amount and the length of the period. (3) Share option — at the start of the savings period, employees are granted a share option to buy shares at a discounted price (typically 80% of the market value at grant, i.e., a 20% discount). (4) Exercise — at the end of the savings period, employees can use their savings and bonus to exercise the option and buy shares at the discounted price. (5) Cash alternative — if the share price has fallen, employees can take the cash savings and bonus instead of exercising the option. SAYE is a low-risk scheme for employees (they can always take the cash), and it provides a tax-efficient way to acquire shares. Relevant legislation: Schedule 3 ITEPA 2003 (SAYE rules); Savings-Related Share Option Schemes Regulations 1986 (as amended). Example: An employee saves £250 per month for 5 years (total savings: £15,000). At the end, they receive a tax-free bonus of £2,000. The share price at grant was £10, and the option price was £8 (20% discount). If the share price at the end is £15, the employee can exercise the option and buy 2,125 shares (£15,000 + £2,000 = £17,000 ÷ £8 = 2,125 shares). The shares are worth £31,875 (2,125 × £15). The gain is £14,875 (£31,875 - £17,000), subject to CGT. Common mistake: Confusing SAYE with SIP (Share Incentive Plan). SAYE is a savings-linked option scheme, while SIP is a share acquisition and holding scheme. They have different rules and tax treatments.

What are the tax advantages of SAYE?

SAYE offers: tax-free savings bonus, no income tax or NIC on grant or exercise, CGT only on disposal of the shares, and the ability to transfer shares to an ISA or pension within 90 days to defer CGT. SAYE offers several tax advantages: (1) Tax-free bonus — the savings bonus at the end of the savings period is tax-free (no income tax or NIC). (2) No income tax on grant — there is no income tax or NIC when the share option is granted. (3) No income tax on exercise — there is no income tax or NIC when the option is exercised (even though the exercise price is at a discount to the market value at grant). (4) CGT on disposal — CGT is only due when the shares are sold, on the gain (sale proceeds minus exercise price). If the shares are held in an ISA, no CGT is due. (5) ISA/pension transfer — if the shares are transferred to an ISA or pension within 90 days of exercise, the CGT on the gain at the date of transfer is deferred (the gain is not subject to CGT at that point, but the shares retain their original cost base for future CGT calculations). This is a valuable relief, as it allows employees to shield the shares from future CGT. (6) Early leavers — if the employee leaves the scheme early (e.g., due to leaving employment), the savings and bonus are returned without tax. Relevant legislation: Schedule 3 ITEPA 2003 (SAYE tax advantages); TCGA 1992, Schedule 7AC (ISA/pension transfer relief). Example: An employee exercises SAYE options, buying shares for £8,000 (the savings + bonus). The shares are worth £20,000 at exercise. No income tax on exercise. The employee transfers the shares to an ISA within 90 days. The £12,000 gain (£20,000 - £8,000) is not subject to CGT at the transfer. If the employee later sells the shares for £30,000, no CGT is due (the shares are in an ISA). Common mistake: Not transferring the shares to an ISA within 90 days of exercise. After 90 days, the transfer relief is lost, and the gain on the shares is subject to CGT on disposal.

Who is eligible for SAYE?

SAYE is an all-employee scheme — it must be offered to all employees who meet the eligibility requirements (typically 18 months of service and 18 years of age). The company can set a maximum monthly savings amount. SAYE is an all-employee scheme, which means it must be offered to all eligible employees. Eligibility requirements: (1) Age — employees must be 18 or over. (2) Service — the company can require employees to have 18 months of service (or less, at the company's discretion). (3) Working hours — the company can exclude employees who work fewer than 20 hours per week. (4) Invitation — all eligible employees must be invited to participate at the same time (the scheme operates in 'invitations' that run at specific dates). (5) Savings limits — employees can save between £5 and £500 per month. (6) Savings period — employees can choose a savings period of 3, 5, or 7 years. (7) Company eligibility — SAYE is available to listed companies (whose shares are quoted on a recognised stock exchange) and unlisted companies (though the company needs a mechanism to determine the share price and facilitate the exercise of options). SAYE is designed to be a broad-based, all-employee scheme, unlike EMI and CSOP which can be selective. Relevant legislation: Schedule 3 ITEPA 2003, Paragraph 3 (eligibility requirements). Example: A listed company offers SAYE to all employees aged 18+ with 18 months of service. Employees can save between £5 and £500 per month for 3, 5, or 7 years. The options are granted at 80% of the market value at the start of the savings period. All eligible employees must be invited to participate. Common mistake: Offering SAYE only to senior employees. SAYE is an all-employee scheme — it must be offered to all eligible employees. Offering it selectively can result in the loss of tax advantages.

How does SAYE compare to EMI and CSOP?

SAYE is an all-employee scheme with a £500/month savings limit and a 20% discount on share price. EMI and CSOP are selective schemes with higher limits (£3m and £60k) and no savings requirement. SAYE is lower-risk but lower-reward than EMI/CSOP. SAYE, EMI, and CSOP are all tax-advantaged share schemes, but they serve different purposes: (1) Target audience — SAYE is an all-employee scheme (must be offered to all eligible employees). EMI and CSOP are selective (can be offered to specific employees). (2) Limits — SAYE: £500/month savings (max £42,000 over 7 years); EMI: £3 million per employee; CSOP: £60,000 per employee. (3) Discount — SAYE options are at 80% of market value (20% discount); EMI and CSOP options are at market value (no discount). (4) Savings — SAYE requires employees to save from salary; EMI and CSOP do not. (5) Risk — SAYE is low-risk (employees can take the cash if they don't want the shares); EMI and CSOP have no savings element (employees must pay the exercise price). (6) Tax advantages — all three offer no income tax on exercise and 18% BADR on disposal. SAYE also offers a tax-free savings bonus. (7) Eligibility — SAYE: all employees; EMI: qualifying companies only (unlisted, <£30m assets, <250 employees, qualifying trade); CSOP: any qualifying company (including listed). SAYE is best for broad-based employee participation, while EMI and CSOP are for targeted employees. Relevant legislation: Schedule 3 ITEPA 2003 (SAYE); Schedule 4 ITEPA 2003 (CSOP); Schedule 5 ITEPA 2003 (EMI). Example: A company offers SAYE to all employees (broad-based participation, low-risk, £500/month limit). It also offers EMI options to senior employees (selective, higher limit, higher reward). The combination provides both broad-based employee engagement (SAYE) and targeted incentives for key employees (EMI). Common mistake: Using SAYE instead of EMI for senior employees. SAYE's £500/month limit is much smaller than EMI's £3 million limit, and SAYE requires employees to save from salary, which may not be appropriate for senior employees.

What happens to SAYE options if I leave my job?

If you leave your job during the SAYE savings period, you can continue saving and exercising the options (if you leave in good circumstances), or you can take the cash savings and bonus without exercising the options. The treatment depends on the reason for leaving. The treatment of SAYE options when an employee leaves depends on the reason for leaving: (1) Good leavers (retirement, injury, disability, redundancy, death) — the employee can continue saving and exercise the options at the end of the savings period. The options remain exercisable for 6 months after the end of the savings period. (2) Other leavers (resignation, dismissal) — the savings contract is terminated. The employee receives their savings back, plus a (reduced) bonus based on the period saved. The options lapse and cannot be exercised. (3) Just and equitable — in certain circumstances, the trustees may allow the employee to continue the savings contract on a 'just and equitable' basis. The treatment is less generous than EMI, where employees typically have 90 days to exercise their options after leaving (or 3 months for retirement/injury/disability). SAYE's treatment of leavers is designed to be fair to employees who leave through no fault of their own (good leavers) while preventing employees who resign from benefiting from the scheme. Relevant legislation: Schedule 3 ITEPA 2003, Paragraph 15 (early leavers); Savings-Related Share Option Schemes Regulations 1986 (as amended). Example: An employee is made redundant 2 years into a 5-year SAYE savings period. They can continue saving for the remaining 3 years and exercise the options at the end. An employee who resigns 2 years into the period has their savings contract terminated, receives their savings back (plus a reduced bonus), and the options lapse. Common mistake: Assuming that SAYE options can always be exercised after leaving. For 'other leavers' (resignation, dismissal), the options lapse and cannot be exercised — only the savings and a reduced bonus are returned.

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Save As You Earn (SAYE / Sharesave)

SAYE (Sharesave) is an all-employee savings scheme linked to share options. Understand how it works, the tax advantages, and how it compares to other share schemes.

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Save As You Earn (SAYE), also known as Sharesave, is a tax-advantaged share scheme available to all employees of a qualifying company. It combines a savings scheme with a share option: employees save a fixed amount each month for 3, 5, or 7 years, receive a tax-free bonus at the end, and can use the savings and bonus to exercise share options at a discounted price. SAYE is one of the three tax-advantaged all-employee share schemes in the UK (alongside SIPs and CSOP).

How SAYE Works

SAYE operates as follows: (1) Savings — employees save a fixed amount each month (between £5 and £500) for 3, 5, or 7 years. (2) Bonus — at the end of the savings period, employees receive a tax-free bonus (calculated based on the savings amount and period). (3) Option — at the start of the savings period, employees are granted a share option to buy shares at a discounted price (typically 80% of the market value at grant). (4) Exercise — at the end of the savings period, employees can use their savings and bonus to exercise the option and buy shares, or they can take the cash savings and bonus.

Tax Advantages

SAYE offers several tax advantages: (1) No income tax or NIC on the savings bonus (it is tax-free). (2) No income tax or NIC on grant or exercise of the option. (3) CGT is only due on the gain when the shares are sold (not when the option is exercised). (4) If the shares are transferred to an ISA or pension within 90 days of exercise, the CGT can be deferred (subject to limits). (5) If the employee leaves the scheme early, the savings and bonus are returned without tax.

Eligibility

SAYE is an all-employee scheme — it must be offered to all employees who meet the eligibility requirements (typically 18 months of service and 18 years of age). The company can set a maximum monthly savings amount and a maximum participation level. SAYE is available to listed companies and unlisted companies (though unlisted companies need a mechanism to determine the share price).

SAYE vs Other Schemes

SAYE is different from EMI and CSOP in several ways: (1) All-employee — SAYE must be offered to all eligible employees, while EMI and CSOP can be selective. (2) Savings — SAYE requires employees to save from their salary, while EMI and CSOP do not. (3) Discount — SAYE options are granted at a discount (up to 20%), while EMI and CSOP options are at market value. (4) Risk — SAYE is low-risk (employees can take the cash if they don't want the shares), while EMI and CSOP have no savings element. (5) Limits — SAYE has a £500/month savings limit, while EMI has a £3 million limit and CSOP has a £60,000 limit.

Key Points

What You Need to Know

SAYE (Sharesave) is an all-employee savings-linked share option scheme
Employees save £5-£500 per month for 3, 5, or 7 years
The savings bonus is tax-free, and there is no income tax on exercise
Options are granted at a discount of up to 20% of the market value
Employees can take the cash savings and bonus instead of exercising the option

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