How can I cut capital gains tax on the shares I have from my employer?

In our weekly series, readers can email any questions about their finances to be answered by our expert, Rosie Hooper. Rosie is a chartered financial planner at Quilter Cheviot and has worked in financial services for 25 years. If you have a question for her, email us at money@inews.co.uk. Question: My sharesave at work is about to mature and the good news is I will be making a considerable gain. The downside is I am a higher-rate taxpayer. What can I do to mitigate the capital gains tax (CGT), please? Answer: That’s a great position to be in, even if the tax side takes a little of the shine off it.To give a brief explanation for those not familiar, sharesave, sometimes called save as you earn (SAYE), involves a company offering its employees the right – known as the option – to buy shares in the company at a future date. You can get a discount on the current price. A sharesave maturing with a healthy gain is a good problem to have but you are absolutely right to be thinking about CGT early. This is one of those situations where a bit of planning in the right window can make a real difference to how much you keep. The first thing to understand is how the tax works. When your sharesave scheme matures and you exercise the option, you can usually buy the shares without paying income tax or national insurance on the discount. The tax only becomes an issue later if and when you sell the shares and realise a gain. At that point, CGT may apply. You have a small annual allowance, currently £3,000, and anything above that is taxable. As a higher rate taxpayer, gains on shares above the allowance are typically taxed at 24 per cent, so this is worth planning carefully rather than rushing to sell everything at once. The most valuable opportunity you have is the ability to move those shares into a stocks and shares ISA. When your sharesave plan ends, you have a 90-day window to transfer the shares directly into an ISA. If you do that, you do not trigger CGT at that point. Once the shares are inside the ISA, any future growth and any income are completely tax-free. This is where many people can go wrong because the process has a few moving parts. You will usually need the appropriate documentation from your scheme administrator to show the shares came from a sharesave plan. ISA providers will often require this before they will accept the transfer. There can also be practical steps in getting the shares from the scheme into a form that your ISA provider can accept so it is worth allowing a bit of time to organise it. The other constraint is the ISA allowance. You can currently move up to £20,000 of shares into an ISA in a tax year and that limit is firm. No matter how large your gain is, that is the maximum you can shelter in one go. That means if your sharesave holding is significantly larger, you have a decision to make. You might move as much as possible into the ISA within that 90-day window to protect it from future tax. You could then sell some of the remaining shares to use your annual CGT allowance and potentially hold on to the rest and deal with it gradually over future tax years. Spreading sales like this can help reduce the total tax bill. You may also come across the idea of using a flexible ISA in this situation. These can be helpful, but it is important to understand exactly what they do. A standard ISA works on a strict “use it or lose it” basis. If you invest £20,000 in a tax year, that is your allowance used. Even if you take money back out later, you cannot replace it without using a new allowance. A flexible ISA softens that rule slightly but only within the same tax year. If your provider offers flexibility and you withdraw money, you can put that same amount back in again before the end of the tax year without it counting as a new contribution. So if you invested £20,000 and then withdrew £10,000, a flexible ISA would allow you to return that £10,000 before 5 April, without breaching your allowance. Where this can be useful with a sharesave windfall is in managing timing and cash flow. If you already have a sizeable ISA pot built up over previous years, a flexible ISA gives you more control over how you use it. For example, you might withdraw some funds from within the ISA for a short period and then replace them later in the same tax year, without losing any of the tax shelter. Equally, if you move sharesave shares into the ISA and then decide to sell some of them, flexibility can allow you to take cash out temporarily and still put it back before the tax year ends, keeping everything protected. But the key point is that flexibility does not increase how much you can bring into the ISA in the first place. The sharesave transfer itself is still limited by the £20,000 annual allowance. It does not allow you to shelter a larger amount or use future years’ allowances early. So while a flexible ISA can be a useful tool if you already have assets inside it, it’s not a way of solving the £20,000 limit on a large sharesave gain. Ultimately, this comes back to timing and structure. Use the 90-day window carefully, shelter as much as you can inside an ISA, and then think about how you manage what remains over time. You have done the hard part by building up the gain. A little planning now can make sure you keep as much of it as possible rather than handing more than necessary over to tax.