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Change in bonus rates for Save As You Earn scheme

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Issued 3 September 2008

HM Treasury has today announced changes in the bonus rates for the Save As You Earn (SAYE) (Sharesave) scheme that will maintain SAYE in line with other interest rates.

SAYE is one of four tax-advantaged schemes administered by HMRC and is part of the Government's initiative to promote wider employee share ownership across the UK.

The bonus rates were last changed on 4 April 2008.

The new bonus rates introduced on 1 September 2008 were:

Contract Type Bonus Rate
(Previous rates in brackets)
Effective interest rate
(Previous rates in brackets)
3 year 2.4 x value of employee's monthly payments
(1.6)
4.23%
(2.84)%
5 year 7.0x value of employee's monthly payments
(5.1)
4.36%
(3.22)%
7 year 12.7 x value of employee's monthly payments
(9.8)
4.28%
(3.36)%

Employees who sign up to SAYE will receive the bonus rate for the relevant contract that was in force at the time they joined the scheme. They will not be affected by future bonus rate changes.

The Early Leaver Rate, which applies to those who withdraw their funds after 12 monthly contributions, but before the three-year anniversary, have also been adjusted as follows:

Early Leaver Rate Pre-1 September 2008
2.0%
From 1 September 2008
3.0%

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Notes

1. SAYE is a savings vehicle for employees of companies that operate savings related share option schemes that are HMRC approved.

2. The company offers its employees the option to buy shares in the company at a future date. The option may be granted at a discount of up to 20% of the current share price.

3. The employee then saves between 5 and 250 per month out of taxed pay on a 3 or 5 years saving contract. The 7-year contract, also available, is actually an extension of the 5-year contract where the employee leaves the contributions in for a further two years. When the contract matures, a tax-free bonus is received. The employee can then choose either to exercise the option to buy shares with the proceeds from the savings contract and normally the bonus, or just to take the proceeds and the bonus.

4. The bonuses are equivalent to a fixed rate interest and are set by HM Treasury. No income tax or National Insurance Contributions are normally incurred on the grant or exercise of options. However, there can be an income tax charge on exit, if this occurs within 3 years of grant in circumstances other than redundancy, retirement, injury, disability or death.

5. SAYE schemes are operated for companies by banks, building societies, or European Authorised Institutions, which must first be authorised by HM Treasury.

6. Automatic mechanism

  • The bonus rates for 3, 5 and 7 year SAYE contracts are adjusted automatically on an annual basis by linking them to 3, 5 and 7 year market swap rates (the market reference swap rates).
  • The bonus rates are adjusted to maintain the following gaps in basis points (bp) under the market reference swap rates:
Contract type Basis point margin under market swap rate
3 year 205bp under 3 year market reference swap rate
5 year 175bp under 5 year market reference swap rate
7 year 165bp under 7 year market reference swap rate

7. The market reference swap rate for the relevant 3, 5 or 7 year SAYE contract is the average over the last 10 working days of June for the new bonus rates which come into force on 1 September the same year.

8. The mechanism allows for bonus rates to be adjusted at other points during the twelve-month period between annual autumn changes if the market reference swap rates move dramatically. This adjustment is triggered if the 3 or 5 year swap rates (measured as an average over a rolling 30 day period), are greater than or equal to 125bp below or above their reference levels at the start of the 12 month period (or any adjusted level which may be in force).

9. If this trigger condition is met, the bonus rates are reset to maintain the 205bp, 175bp and the 165bp gaps under the new reference swap rate as appropriate, which is the average swap rate over the last 10 working days of the 30-day period. The bonus rates will then generally apply until the annual reset.

10. This press release and other Treasury publications and information are available on the HM Treasury website. If you would like Treasury press releases to be sent to you automatically by email you can subscribe to this service from the press release site on the website.


About the Author

Crown Copyright. Material taken from the BERR- Department for Business, Enterprise and Regulatory Reform replacing DTI - Department for Trade and Industry. Reproduced under the terms and conditions of the Click-Use Licence.


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Article Published/Sorted/Amended on Scopulus 2008-09-04 08:44:34 in Tax Articles

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