Revenue approved share schemes
Save As You Earn (SAYE)
Your employer may grant you share options under an approved savings related share-option scheme. If so, you will be exempt from Income Tax 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.
Main features
There are two elements to this scheme:
- a certified contractual savings scheme
- an approved savings related share-option scheme.
The savings scheme is used to fund the purchase of shares allocated under the share option scheme.
Savings scheme
If you decide to participate in the scheme, you must enter into a savings contract. Your employer may offer you a three-, five- or seven-year savings contract.
You can save between €12 and €500 per month. Your employer will deduct the savings amount from your net salary. Your savings are then placed on deposit with an approved bank or savings institution.
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.
Any interest or bonus paid on these savings will be exempt from Income Tax and Deposit Interest Retention Tax (DIRT).
Share-option scheme
Once you complete the savings period, you can decide if you want to exercise your option to buy the shares.
If you decide not to exercise your option, the bank or savings institution will return your savings to you. The total savings can be withdrawn tax free.
Taxation on exercise of option
If you decide to exercise your option at the end of the savings period, you will not have to pay Income Tax on any gain you make.
You must pay Universal Social Charge (USC) and Pay Related Social Insurance (PRSI). Your employer will make the necessary deductions through payroll and pay the tax directly to the Collector-General.
Capital Gains Tax (CGT)
If you dispose of your shares, you may be liable to CGT.
You must report this disposal to Revenue, even if no tax is due. Your employer will not deduct any tax or report the disposal for you.
When you calculate the chargeable gain, the option price is used as your cost of acquisition.
- Example
In November 2019, Philip’s employer granted him share options under an approved savings-related share-option scheme. The market value of shares at grant date is €6.25 per share. Philip’s employer sets the option price at €5 per share (a 20% discount).
Philip saves €100 a month for five years. In November 2024, at the end of the five-year period, he has saved €6,600 (€6,000 savings plus €600 interest). He does not pay Income Tax or DIRT on the interest.
Philip exercises his option and buys 1,320 shares at €5 per share. The market value per share on the date of exercise is €15. His employer deducts USC and PRSI through the payroll. Philip does not pay Income Tax on the exercise gain.
If Philip ever sells the shares, his base cost for CGT purposes will be €5 per share.
Taxation on excise of option
| Description | Calculation | Amount |
|---|
|
Market value of 1,320 shares
|
1,320 x €15
|
€19,800
|
|
Option price paid by Philip
|
1,320 x €5
|
€6,600
|
|
Exercise gain
|
|
€13,200
|
|
Income Tax (exempt)
|
|
nil
|
|
USC (8%)
|
|
€1,056
|
|
PRSI (4.1%)
|
|
€541
|
|
Total taxes
|
|
€1,597
|