Under a SAYE scheme, if an employee exercises their option to buy shares and sells immediately for a profit, what tax applies after the annual exemption?

• A. Exit tax at 41% is deducted from the gain.
• B. Income tax at standard rate only.
• C. Income tax at 40%.
• D. The gain, after allowing for the annual exemption is liable to Capital Gains Tax.

Answer: (D)

In a SAYE scheme the tax treatment on disposal works with capital gains rather than regular income tax. When you exercise and then sell the shares for a profit, the gain to be taxed is the rise in value from the exercise price to the sale price (net of disposal costs). You first deduct the annual Capital Gains Tax exemption, and the remaining amount is taxed as a capital gain at the applicable CGT rates. There isn’t an additional income tax charge on exercise for an approved SAYE plan, and there isn’t an “exit tax” to apply. So, after the annual exemption, the gain is liable to Capital Gains Tax.