Share purchase schemes could fold as a result of Brexit

Share-purchase schemes for thousands of small business employees could fold as a result of Britain’s departure from the European Union.

The chief executive of the Irish ProShare Association (Ipsa) has warned that more than 10,000 Irish employees face being left out pocket over save-as-you-earn (SAYE) schemes unless the issue of Brexit passporting rules for financial firms is dealt with soon.

Two of the three main depositaries for Revenue-sanctioned SAYE schemes are based in England. Both Barclays and the Yorkshire Building Society operate in Ireland under passporting regulations where their UK banking licences are recognised in other EU jurisdictions.

However, passporting is likely to end with Brexit. UK prime minister Theresa May said in a speech earlier this year that passporting was not a priority for her government as it would bind the UK to an EU-based rulebook over which it would have no control.

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That would leave Ulster Bank, a Royal Bank of Scotland subsidiary, as the only bank holding SAYE accounts that currently has the necessary Irish approvals, according to the Ipsa.

Chief executive Gill Brennan says that as many as 10,000 staff at member companies have savings of about €12 million tied up in institutions based in or with headquarters in the UK.

And she said the numbers involved could be a multiple of that as many businesses offering their employees SAYE schemes would not be members of her group.

Saver options

SAYE schemes allow employees to save €12-€500 a month for a minimum of three years. At the end of that period, the money can be used to exercise options over shares in the business at a discount to the price in place when the savings scheme started.

Savers have the option not to buy shares but to have the money returned, in which case no tax, including Dirt, is deducted. Generally, savers would invest in the shares unless the price of the company’s stock had tanked in the intervening period.

Capital gains tax is levied on any gain when the shares are eventually sold by the employees.

A spokeswoman for Revenue said rules governing SAYE schemes, laid down by the Department of Finance, do not provide for transfer of the funds under the tax-efficient schemes in the event of a savings institution ceasing to qualify to hold SAYE funds.

She said Revenue would await the outcome of Brexit negotiation to determine the implications for “certified contractual savings schemes”, such as the SAYE.

But she added: “Where a scheme no longer meets the requirements, approval can be withdrawn. In such cases, individuals no longer qualify to receive shares on a tax-efficient basis. They would receive a refund of any savings made under the terms of the savings contract.”

“The purpose of the SAYE scheme is to retain staff, provide employees with the option to save so they can become part owners of the company they work for and to act as an incentive to retain staff,” said Ms Brennan. “All of these things that have proved to be beneficial to so many SMEs will be lost if nothing is done.”