Shares Saving Schemes

Table of Contents

Overview

Employer-organised savings schemes may facilitate the purchase of shares under a share option scheme. An employee or director may be granted the right to purchase or acquire shares in the employer company under an approved savings-related share option scheme. The shares are paid for out of the proceeds of the certified contractual savings schemes.

The tax legislation permits employees to save part of their after-tax salary, between €12 and €500 per month over a period. At the end of the period, the accumulated savings and interest may be used to purchase shares in the employer company in accordance with the scheme.

Whether or not the proceeds are used, interest on any other payment received as a bonus is tax-free under the scheme. No DIRT arises. Any bonus or interest payable under a savings contract qualifies for exemption for tax and levy purposes.

The company which establishes the scheme, may obtain a deduction against its corporation tax liability, in respect of the cost of establishing the scheme. Obtaining revenue approval has various conditions, which are broadly similar to those for an approved profit-sharing scheme.

Revenue Approval

The application should be supported by the appropriate evidence. Revenue may require individuals to provide information within 30 days to enable them to determine whether the scheme satisfies the relevant criteria. Revenue may also investigate whether there have been breaches of conditions.

If the conditions cease to be satisfied, Revenue may withdraw approval. An appeal may be made to Appeal Commissioners against refusal to approve the scheme, refusal to approve an alteration to the scheme or withdrawal of approval for the scheme. The conditions for approval are broadly similar to approved profit-sharing scheme.

A group scheme may be established by a number of groups of companies or by associated companies under common control. The scheme must be with a qualifying savings institution. The scheme may include a discounted option price of up to 25% of the market value of the shares, as measured at the commencement of the savings period, without affecting the favourable tax status.

Savings

Savings must be held in Euros. A person shall pay 36 monthly contributions under a 3 year savings contract or 60 monthly contributions under a 5 year savings contract at the amount specified by him or her on the application form. The amount specified must be a multiple of whole Euros, not less than €12 and not more than €500 (and subject also to certain limitations.

Contributions under a savings contract shall normally be made through the employing company, as the agent of the employee, from deductions from pay authorised by the employee, except that when the person no longer holds the office or employment by virtue of which he or she is eligible to participate in the relevant share option scheme, he or she may make monthly contributions of the amount specified on the application form by some other means approved by the qualifying savings institution.

Exceptionally, the qualifying savings institution may, if it thinks fit, agree to monthly contributions being made up to five months in advance of the due date for payment if this occurs as a result of contributions being made at 4 weekly intervals. A monthly contribution shall be treated as paid only when it has been received in full by the qualifying savings institution.

Employees Participating

The scheme must be an all-employee scheme. Participation must be open to all employees on similar terms. They must be available to persons who are full-time employees or directors of the company that establishes a scheme or a participating company in the case of a group scheme.

They must have been so employed during the period of qualification, which may be up to three years. They must be taxable on employment income under Schedule E.

The scheme must not have features that discourage employees from participating. It must not confer benefits mainly or wholly on the highest-paid directors or employees within the group. Persons with a material interest in the scheme may not acquire shares.

Persons may not have a material interest in a close company, which is either the company whose shares are in question, a company controlling that company or a company that is a member of a consortium owning the company.

Persons may have identical rights, but the terms must not be discriminatory. Persons in the same circumstances should be treated equally. However, there may be differences in terms of length of service, remuneration, and other material factors.

The shares that may be acquired under the scheme must meet certain conditions. They must be part of the ordinary share capital of the company that establishes the scheme, a company that has control of that company, or certain other closely connected companies.

The shares must be fully paid up, not redeemable and not subject to restrictions. There are permissible restrictions which may require the disposal of the shares, where the person cease to be an employee or director. Restrictions are arrangements or conditions which impedes the freedom to dispose of the shares or to exercise rights conferred by them.

Where a company has more than one class of issued ordinary shares, the majority of the shares of the type used in the scheme, must be held by persons who have not acquired the shares through opportunities available to them as directors or employees of the company, which established the scheme or of trustees on their behalf.

Shares acquired under the scheme, must be paid for from the contractual saving scheme. The rights must not be capable of being exercised before the date on which payments are due to be paid. The participants must elect whether to use scheme to buy the shares in whole or in part.

Death & Leavers

When a person dies before the bonus date, the scheme must provide for the rights to be exercisable within 12 months of the date of death. The scheme also must provide for good leavers who cease to hold employment as a result of injury, disability, redundancy or retirement or on reaching a specified age between 60 and 65.

In the case of leavers who leave within three years of acquiring the rights, the rights must lapse, except in cases where the office of employment is in a company of which the grantor ceases to have control or relates to a business which is transferred to a person which is neither associated with the company establishing the scheme, nor under its control.

If a person’s office or employment ceases because the company which established the scheme ceases to have control or if it relates to a business which is transferred to a person who is not associated, then the rights must be exercised within six months of cessation. Where a person leaves more than three years after acquiring rights, they must lapse or be exercisable within three months or six months from cessation.

Scheme Terms

Scheme rules may provide for takeovers, reconstructions or amalgamations. Participants’ rights to acquire shares may be exercised within six months of the takeover or amalgamation. If the company is wound up voluntarily, participants may exercise their rights to acquire shares within six months.

The contributions must be sufficient to acquire the shares under the option scheme. They should be pitched within the maximum and minimum band prescribed by the Minister (€12 to €500). It may factor in a discount of up to 25%.

The Minister for Finance may specify the requirements for contractual saving schemes. They must be operated with a financial institution.

Where a person obtains a right to acquire shares in his employer company by his office of employment, under an approved SAYE scheme, no tax is charged on the right. The right must not be exercised within three years of being granted, subject to exceptions.

Returns must be made in a prescribed form mandatorily in respect of each SAYE scheme. After 2009, they are equivalent to the returns required for other share option vehicles and trusts.

Three Years’ Savings

When a person has duly completed the payment of 36 monthly contributions and the third anniversary of the starting date has been reached, he or she shall be entitled to receive repayment of the total amount of his or her contributions together with a bonus equal to the 3-year fixed bonus not earlier than the “bonus date” (that is, the third anniversary of the starting date).

The 3-year fixed bonus under a 3-year savings contract shall be a multiple of the monthly contribution not exceeding 2 such monthly contributions and shall be determined by the qualifying savings institution on or before the starting date of the 3-year savings contract on the basis that 36 monthly contributions will be made, and the bonus will be paid on the third anniversary of the starting date.

The qualifying savings institution shall repay after the bonus date the 36 monthly contributions and the bonus although no application to it for repayment has been made. No interest shall be payable by the qualifying savings institution under the contract in respect of any period after the bonus date.

Five & Seven Years’ Scheme

Under a five years saving scheme, when a person has duly completed the payment of 60 monthly contributions and the fifth anniversary of the starting date has been reached, he or she shall be entitled on application in writing to the qualifying savings institution to receive—

not earlier than “the bonus date” (that is, the fifth anniversary of the starting date) and before the second anniversary of the bonus date, repayment of the total amount of his or her contributions together with a bonus equal to the 5 year fixed bonus, or
not earlier than the second anniversary of the bonus date, repayment of the total amount of his or her contributions together with a bonus equal to the 7 year fixed bonus, or
where repayment is made between the bonus date and the second anniversary thereof, the sum payable above together with compound interest, with monthly rests, calculated at the fixed rate per cent per annum on that sum in respect of each completed month beginning with the bonus date and ending with or before the date of repayment.

The 5 year fixed bonus under a 5 year savings contract shall be a multiple of the monthly contribution not exceeding 6 such monthly contributions and shall be determined by the qualifying savings institution on or before the starting date for the 5 year savings contract on the basis that the payment of 60 monthly contributions will be made and the bonus will be paid on the fifth anniversary of the starting date.

The 7 year fixed bonus under a 5 year savings contract shall be a multiple of the monthly contributions not exceeding 12.5 times such monthly contributions and shall be determined by the qualifying savings institution on or before the starting date for the 5 year savings contract on the basis that the payment of 60 monthly contributions will be made and the bonus will be paid on the seventh anniversary of the starting date.

Repayment

The qualifying savings institution shall repay after the second anniversary of the bonus date the 60 monthly contributions and the bonus with any interest applicable although no application to it for repayment has been made. No interest shall be payable by the qualifying savings institution under the contract in respect of any period after the second anniversary of bonus date.

Under a 3 Year Savings Contracts, where a person who has not completed the payment of 36 monthly contributions gives notice in writing to the qualifying savings institution that he or she intends to stop paying contributions, no further contributions under the savings contract shall either be payable or be accepted by the qualifying savings institution.

In the above case, he shall be entitled, on application in writing to the qualifying savings institution, to full, but not partial, repayment of the total amount of the contributions made by him or her with interest as follows—

if repayment is made before the first anniversary of the starting date, no interest shall be payable;
if repayment is made on or after the first anniversary of the starting date, simple interest shall be payable at the fixed rate per cent per annum.

No additional interest shall be payable under this contract in respect of any period after the third anniversary of the starting date. The qualifying savings institution shall repay after the third anniversary of the starting date the total amount of the contributions made with any interest which has accrued up to that date whether or not the person has applied for repayment, but the qualifying savings institution shall not before that anniversary make any repayment to him or her unless he or she has given notice to the qualifying savings institution that he or she intends to stop paying contributions.

Stopping Payments

Under a 5 Year Savings Contract, where a person who has not completed the payment of 60 monthly contributions gives notice in writing to the qualifying savings institution that he or she intends to stop paying contributions, no further contributions under the savings contract shall either be payable or be accepted by the qualifying savings institution.

In the above case, he shall be entitled, on the application in writing to the qualifying savings institution, to full but not partial repayment of the total amount of the contributions made by him or her with interest as follows

if repayment is made before the first anniversary of the starting date, no interest shall be payable;
if repayment is made on or after the first anniversary of the starting date simple interest shall be payable at the fixed rate per cent per annum . No additional interest shall be payable under this contract after the seventh anniversary of the starting date.

The qualifying savings institution shall repay after the seventh anniversary of the starting date the total amount of the contributions made with the interest which has accrued up to the seventh anniversary whether or not the person has applied for repayment, but the qualifying savings institution shall not before that anniversary make any repayment to him or her unless he or she has given notice to the qualifying savings institution that he or she intends to stop paying contributions.

Death of Member

If a person dies before he or she has completed the payment of 36 monthly contributions under a 3-year contract, no further contributions under his or her savings contract shall either be payable or be accepted by the qualifying savings institution. The total amount of the contributions made by him or her shall, on application in writing by his or her personal representatives, be repayable with interest

if repayment is made before the first anniversary of the starting date, no interest shall be payable;
if repayment is made on or after the first anniversary of the starting date, simple interest shall be payable at a fixed rate per cent per annum.

No additional interest shall be payable under this contract in respect of any period after the third anniversary of the starting date. However, the qualifying savings institution shall retain any contributions paid in advance at the date of death, and unless repayment has been made after application by personal representatives, the qualifying savings institution shall treat it as having been paid in the month to which it relates.

The qualifying savings institution shall repay the total amount of contributions made with the interest accrued to that date after the third anniversary of the starting date, although no application for repayment has been made. If a person dies after he or she has completed the payment of 36 monthly contributions, his or her personal representatives shall be entitled on application in writing to the qualifying savings institution to receive whatever sum would have been payable had the person still been alive at the date of repayment.

If a person dies before he or she has completed the payment of 60 monthly contributions under five year contract, no further contributions under his or her savings contract shall either be payable or be accepted by the qualifying savings institution. The total amount of the contributions made by him or her shall, on application by his or her personal representatives, be repayable with interest similar to that above.