Share plans and tax – a beginner’s guide

A walk through the basics of how ShareSave and Buy As You Earn are taxed.

As a valued NatWest colleague, you have the chance to join two different share plans – ShareSave and Buy As You Earn.

Both plans let you pay in an amount of your choice each month, and buy NatWest shares at special terms. They’re a great way to expand your financial universe.

One of the key differences between the plans is how they’re taxed. So it’s a good idea to understand this before you decide whether to join.

Below we look at each plan and explain what you might need to think about.

ShareSave is available wherever you’re based, but Buy As You Earn is only available to colleagues in the UK and Isle of Man. We wrote this article to explain how the plans are taxed in the UK – if you’re looking for tax information in a different country, check out our help section.

Buy As You Earn (BAYE)

‍

Income tax and National Insurance

The main benefit of Buy As You Earn is that you save tax on your investment.

That’s because the money comes from your pre-tax salary, so you’re not paying income tax or National Insurance on your monthly amount.

If you’re a basic rate taxpayer, this means a £100 investment only costs you £68 in real terms. You can use our calculator to find out how much tax you could save.

We invest your money straight away, and your shares build up in an account with Computershare. As long as you leave your shares in the plan, they’re free from tax.

If you sell within the first five years though, you’ll need to repay the tax savings – this gets taken from your sale amount. But if you leave the shares for five years or more, you can sell them and keep the tax breaks.

‍

Capital gains tax

Whenever you choose to sell, your shares are free from capital gains tax, no matter how much they’ve increased in value. But this is only true if you sell your shares from the plan itself. If you transfer shares out of the plan, for example to another broker, and then sell them, any increase in value will be subject to capital gains tax.

‍

Dividends

As a shareholder, you’ll receive dividends whenever NatWest chooses to pay out profits to its owners. You can choose to have these as cash, or extra shares (called dividend shares).

If you choose to receive dividends as cash, these are subject to income tax. But under current rules you can receive up to £1,000 in dividends tax free each year.

If you choose dividend shares, you can’t sell these for three years, but after that they’re free from tax.

ShareSave

‍

Income tax and National Insurance

ShareSave lets you save up to £100 a month, for either three or five years – it’s your choice. At the end you can use the money to buy shares in NatWest, at a price we set at the start, known as the ‘option price’.

Unlike Buy As You Earn, with ShareSave your monthly amount comes from your pay after tax. So there are no income tax or National Insurance savings.

‍

Capital gains tax

At the end of the plan, you can choose whether to buy shares in NatWest, or have your savings returned as cash. If the share price is higher than the option price, you’ll make money by buying the shares. If it’s lower, you’re better off taking your savings back as cash.

If you choose to buy the shares, you can sell them straight away, or keep hold of them, becoming a shareholder. When you sell your shares, any increase in value will be subject to capital gains tax.

The good news is there’s a capital gains tax allowance, which lets you make some gains each year without paying tax. For the 2023/24 tax year this is £6,000, though next year it will drop to £3,000. The allowance covers gains you make from any investments, not just ShareSave.

Any gains which are more than this allowance are taxed at 10% for basic rate taxpayers and 20% for higher rate taxpayers. If you’re set to make a gain which is more than the allowance, don’t worry – there are a few ways you can reduce the tax you might pay, or even avoid it altogether.

For an explanation of what you can do, see our article on capital gains tax and ShareSave.

‍

Dividends

With ShareSave you don’t own any shares until the plan ends, so you won’t receive dividends during the plan.

You’ll get interest on your savings though. This is called the ‘ShareSave bonus’, and it’s tax-free.

If you choose to buy shares at the end and keep them, you’ll get dividends whenever NatWest chooses to pay out profits to its owners. These are subject to income tax – though under current rules you can receive up to £1,000 in dividends tax free each year. This covers dividends from all your investments.

Finally, please remember that tax rules can change, and tax savings depend on your individual circumstances. We wrote this article to give you an overview of share plan tax, but it’s not advice. If you’re not sure whether you need to pay tax, or how much, you should get in touch with an adviser.