Employment related shares
Approved share schemes
There are two types of Revenue approved employee share schemes:
- Approved Profit Sharing Schemes
- approved savings related, or Save As You Earn (SAYE), share option schemes.
Approved Profit Sharing Schemes
Any free shares you receive from your employer are normally taxable. However, your employer may operate an Approved Profit Sharing Scheme (APSS). If so, your employer may allocate tax-free shares to you, provided you meet certain conditions. You must pay Universal Social Charge (USC) and Pay Related Social Insurance (PRSI) on the value of the shares. Your employer may also allow you to use your annual bonus to buy shares under an approved scheme.
Your employer can only allocate up to €12,700 in tax-free shares to you annually. You must hold the allocated shares in a trust set up by your employer. If you leave the shares in the trust for three years you will be exempt from Income Tax (IT).
You may instruct the trustee to sell or transfer your shares before the end of the three years. If you do, you must pay IT on whichever is lesser of:
- the original shares value
- the shares value at the date of sale or transfer.
Details of how the schemes operate, and the requirements for approval are set out in the Approved Profit Sharing Schemes (APSS) manual.
Approved savings related share option schemes
Your employer may grant you share options under an approved savings related share option scheme. If so, you will be exempt from IT on any gain you make when you exercise the options. That is provided you do not exercise the share options within three years of receiving them.
There are two elements to this scheme:
- Save As You Earn (SAYE), a certified contractual savings scheme
- an approved savings-related share option scheme.
Participation in the scheme is voluntary. You must save between €12 and €500 per month, and you decide how much you want to save. Your employer may offer you a three, five or seven year savings contract. Your employer will deduct the savings amount from your net salary. Then place your savings on deposit with an approved bank or savings institution.
Once you complete the savings period you can decide if you want to exercise your option to buy the shares. The amount you save must be enough to buy the shares at the option price your employer sets. Your employer sets the option price before you start saving. It may be set at a discount of up to 25% of the market value of the shares at the date of grant of the option. If you decide not to exercise your option, the bank or savings institution will return your savings to you.
If you decide to exercise your option at the end of the savings period, you will not have to pay IT on any gain you make. You must pay USC and PRSI. You can find more information on this in the Save As You Earn Schemes (SAYE) manual.
Next: Unapproved share schemes