What is a SAYE scheme?

What is a SAYE scheme? Here is all you need to know. 

SAYE schemes are a type of shared based remuneration scheme on offer in Ireland which are used as a means of rewarding and retaining employees in a tax efficient manner.

There are two elements to a scheme:

  • a save as you earn certified contractual savings scheme, and
  • an approved saving related share option scheme.

The savings scheme is used to fund the purchase of shares allocated under the share option scheme.

The legislation on SAYE and certified contractual savings schemes can be found in sections 519A to 519C TCA 1997 and Schedules 12A and 12B TCA 1997.

Under this employee share scheme, a company grants options over shares to its employees and full-time directors. Separately, the participants will have a formal savings contract with a third-party financial institution for normally a three, five or seven year savings period.

At the end of the savings period, the employees and directors can exercise their right/option to acquire shares in the company and must pay for this out of the proceeds of their SAYE certified contractual savings scheme.

Provided certain conditions are met, any gains arising on the exercise of the options will be exempt from income tax. The Universal Social Charge (USC) and employee Pay Related Social Insurance (PRSI) will still be chargeable.

Main features of the scheme

  • Prior Revenue approval is required in order to set up a savings related share option scheme.
  • The company must engage the services of an approved savings carrier.
  • The costs of establishing an approved SAYE scheme are deductible in computing the company’s profits for corporation tax purposes.

Grant of right/option

  • Participation in the scheme is voluntary. The scheme must be made available to all employees and full-time directors at the same time, on similar terms (subject to a maximum service requirement of three years).
  • The employer will grant a right to purchase shares at a fixed price, known as the option price, at a particular future time. The option price may be at the market value or at a discount of up to 25% of the market value of the shares at the date of grant of the option.
  • Shares acquired by exercising the right must be paid for out of the proceeds of a save as you earn certified contractual savings scheme.

Savings scheme

  • Employees will save with a qualifying institution under a SAYE contractual savings scheme, for a period of three, five or seven years.
  • The employer will deduct the savings amount from the employees’ net salary and place the savings on deposit with an approved bank or savings institution.
  • The maximum monthly savings allowable is €500 and the minimum amount is €12. The monthly contribution is fixed at the start of the contract and cannot be changed.
  • Monthly contributions must be sufficient to secure (as near as possible) repayment of an amount equal to the amount required to pay for as many shares as the individual has the right to acquire.
  • Any interest or bonus paid on these savings at maturity will be exempt from income tax. Deposit Interest Retention Tax (DIRT), where relevant will not be deductible from any interest or bonus paid.
  • The rights must not normally be exercisable earlier than the time repayments under the SAYE certified contractual savings scheme become due.

Exercising the option to buy the shares

  • Provided there are sufficient savings available, at the end of the savings period participants in the scheme (option holders) can exercise their option and buy the shares at the option price.
  • Exercise is not compulsory. If a participant chooses not to exercise their option (i.e. if the options are allowed to lapse) they can take their savings back from the qualifying institution. This would normally happen if options were “under water” i.e. the market value of the shares at the date of exercise is less than the option price.
  • If the options are exercised, any gain arising will be exempt from income tax. Relief is not due where the right is exercised within 3 years of the date the right is obtained (with some limited exceptions). There is no exemption from USC or PRSI.

Disposal of shares acquired

  • If shares acquired under a save as you earn scheme are subsequently sold capital gains tax (CGT) may be due. Tax and Duty Manual

Summary of tax treatment of SAYE Share Options

summary of SAYE

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