Save as you earn: how a sharesave scheme works, and the tax

An employee reads a sharesave invitation, sees that they can save up to £500 a month to buy shares at a price fixed today, and asks three questions nobody in the room can answer with a source. How much can I actually put in? What happens if I leave? Do I pay tax when the shares arrive, or when I sell them?

This article answers those for the United Kingdom from the statute and from HMRC's own manual, with every figure named against the provision that sets it. It covers save as you earn only. Other tax advantaged share schemes exist and run on different rules, so do not read anything here across to them. It is general information, not tax, financial or legal advice.

A company wide savings plan treats everybody identically by law, which is why the individual part of reward has to live somewhere else. See how New Dynamics recognition keeps specific contributions on the record, so the share plan is not asked to do a job it cannot do.

What save as you earn is

Save as you earn, shortened to SAYE and usually sold internally as sharesave, is a share option scheme bolted to a savings contract. HMRC's manual at ETASSUM37010 notes that the rules are "consolidated in Schedule 3 Income Tax (Earnings and Pensions) Act 2003 (ITEPA)" and that "If certain conditions are satisfied no liability to income tax arises when the options are exercised". A plan meeting them is a Schedule 3 SAYE option scheme.

The three moving parts

The savings contract. ETASSUM34110 states the length plainly: "The option-holder is required to make 36 monthly contributions, or 60 in the case of a five year contract", and the total, with any bonus, "will equate to the aggregate exercise price of the linked share option".

The fixed option price. Paragraph 28(1) of Schedule 3 requires the price to "be stated at the time when the option is granted" and to be "not manifestly less than 80% of the market value of shares of the same class". The maximum discount is therefore 20%. ETASSUM38040 is blunt about overshooting: options granted at a discount "in excess of the permitted 20%" are outside section 519 and "attract no tax advantages".

The exercise. Paragraph 30(1) says options "must not be capable of being exercised" before the bonus date or "later than 6 months after that date", the bonus date being when repayments under the savings arrangement are due. Save for three or five years, then a six month window in which to buy or walk away.

The monthly savings limits

Two ceilings apply, and they get confused. The statutory one is paragraph 25(3): a scheme must neither permit contributions "to exceed £500 per month", nor "impose a minimum on the amount of a person's contributions which exceeds £10 per month". Read the second limb carefully. It does not set a £10 floor; it caps how high a company may set its own floor.

HMRC's ETASSUM34210 page on monthly savings limits, in a manual last updated on 7 July 2026, dates the figure and adds the other ceiling: the maximum "is £500 per month, increased from £250 per month from 6 April 2014", a scheme "may set a lower maximum", and the SAYE prospectus separately imposes a minimum that "is currently £5 per month". ETASSUM34110 gives the working range in one line: "each monthly contribution must be between £5 and £500 and a multiple of whole pounds."

The £500 does not move with the tax year. It was set by order with effect from 6 April 2014 and still stands for the 2026 to 2027 tax year.

Three years or five, and whether seven survives

Both periods still exist. GOV.UK's guidance on tax and employee share schemes says you can save up to £500 a month and that "At the end of your savings contract (3 or 5 years) you can use the savings to buy shares". The third option is gone: ETASSUM34130 records that "The 7 year savings feature was abolished with effect from 23rd July 2013".

Any bonus is quoted not as a percentage but, in ETASSUM34080's words, as "the number of monthly contributions comprised in 3 or 5 year bonuses", and the rates track the Bank of England Bank Rate. HMRC's published table gives a 3 year bonus of 0.4 monthly contributions and a 5 year bonus of 1.1 for invitations sent from 2 January 2026. Interest and bonus are not taxable, under section 702 of ITTOIA 2005.

The tax position on exercise, and on sale

On grant, nothing. ETASSUM38040 opens with it: "No charge to income tax can arise on the grant of a Schedule 3 SAYE share option."

On exercise, no income tax if the scheme rules are met. Section 519 of ITEPA 2003 carries the relief, and ETASSUM38020 sets the conditions: exercise in accordance with the scheme while it is still a Schedule 3 scheme, and either on or after the third anniversary of grant or earlier for one of the reasons in paragraph 34(2), namely "injury, disability, redundancy or retirement, a sale of business that is a TUPE transfer or a change of control of the employing company". GOV.UK puts it simply: "you do not pay Income Tax or National Insurance on the difference between what you pay for the shares and what they're worth".

On sale, capital gains tax can apply. ETASSUM38100 explains why the bill surprises people. Paragraph 10(4) of Schedule 7D to TCGA 1992 disapplies section 17(1), so the base cost is only what was paid for the grant of the option plus "the actual option exercise price paid when acquiring the shares". The discount that escaped income tax therefore sits inside the gain. HMRC's rates and annual tax free allowances give an annual exempt amount of £3,000 for individuals for the 2026 to 2027 tax year.

The transfer that avoids it. GOV.UK states you will not pay capital gains tax if you transfer the shares "to an Individual Savings Account (ISA) within 90 days of taking them out of the scheme", or "to a pension, directly from the scheme when it ends". Ninety days is short, it starts at maturity, and it belongs in the invitation letter.

Leaving, redundancy, and stopping the savings

Paragraph 34 decides what a leaver keeps, and it turns on the reason for leaving.

Six months, for the listed reasons. Where the employment ends because of "injury or disability or redundancy within the meaning of ERA 1996", retirement, a relevant TUPE transfer, or the employing company ceasing to be an associated company by reason of a change of control, paragraph 34(2) says "the options may only be exercised within 6 months after the termination date". Those six months are also what makes an early exercise tax relieved.

Any other reason, and timing decides. Under paragraph 34(3), options granted more than three years before the termination date "either (a) may not be exercised, or (b) may only be exercised within 6 months after the termination date, according to which of these alternatives is specified in the scheme". Under paragraph 34(4), options granted three years or less before that date "may not be exercised at all". A resignation 30 months into a three year contract is the hard case, and the savings still come back. On death, paragraph 32 requires 12 months.

Stopping the savings. ETASSUM34130 says a participant may give notice at any time that they intend to stop permanently, and is "then entitled to repayment in full of their aggregate monthly contributions, plus interest if repayment is taken after the first anniversary". Repayment "cannot be taken in part only". Someone who cannot afford the amount may instead leave the savings in place to the three or five year point, though scheme rules may provide that stopping "causes the option to lapse".

Pausing instead. ETASSUM34140 lets an employee "delay the payment of monthly contributions, by up to twelve occasions in total" without cancelling the contract, with a thirteenth missed payment treated as notice to stop. Every month postponed puts back the maturity date, and the exercise rights linked to it, by the same number of months.

Open to all employees, and the service you may require

ETASSUM37010 states the structural condition in one sentence: "Unlike Schedule 4 CSOP schemes, Schedule 3 SAYE option schemes must be open to all employees."

Paragraph 6 does the work. The scheme "must provide that every person who meets the conditions in sub-paragraph (2) is eligible to participate", and those conditions include being an employee or full-time director of the scheme organiser or a constituent company "at all times during a qualifying period of not more than 5 years". So a service qualification is allowed, and five years is its ceiling. Paragraph 6(3) bars any feature "which has or is likely to have the effect of discouraging" eligible people from joining.

Self-certification and the 6 July deadline

Prior approval ended in 2014: ETASSUM37010 records that from 6 April that year "the scheme organiser is required to notify the scheme to HMRC and self certify that the scheme meets these conditions."

ETASSUM37030 gives the deadline and the cost of missing it: "Notice must be given by 6 July following the end of the tax year in which the first grant of option is made under the scheme. If notice is given after this date, the SAYE scheme can only be a 'Schedule 3 SAYE option scheme' from the tax year in which the notice is given". An annual return follows under paragraph 40B on or before 6 July in the following tax year, and paragraph 40C prices a missed return at £100, with further penalties of £300 at three months and at six months.

What the published figures show

HMRC's Employee Share Schemes statistics commentary, accredited official statistics published on 3 July 2026, reports that "SAYE schemes have the highest total value of options granted for the tax year ending 2025 at £1.75 billion, a decrease of 16.3% on the tax year ending 2024", with an average value of options per grant of £5,450. No official source publishes a typical take-up rate, a typical discount actually used, or an average monthly contribution, so we do not quote one. Wider UK pay figures sit in our HR statistics hub, and for the parts of a package that run through payroll see our posts on salary sacrifice and fringe benefits.

Frequently asked questions

What is save as you earn?

Save as you earn is a UK share option scheme linked to a savings contract. An employee saves a fixed monthly amount for three or five years and holds an option to buy shares at a price fixed at grant. The statutory name is a Schedule 3 SAYE option scheme, under Schedule 3 to ITEPA 2003.

How much can I save each month under SAYE?

Paragraph 25(3) of Schedule 3 stops a scheme permitting contributions above £500 a month across linked arrangements, and stops it imposing a minimum above £10 a month. HMRC's manual gives the prospectus minimum as currently £5 a month, and each contribution must be between £5 and £500 and a multiple of whole pounds.

What is the biggest discount a sharesave option can have?

Twenty per cent. Paragraph 28(1) requires the price to be stated at grant and to be not manifestly less than 80% of the market value of shares of the same class. HMRC calls the gap the permitted 20%, and says a larger discount puts the options outside section 519 with no tax advantages.

Do I pay tax when I buy the shares?

Not normally. There is no income tax on the grant of the option, and section 519 of ITEPA 2003 removes income tax on exercise where the scheme rules are met and exercise happens on or after the third anniversary of grant, or earlier for injury, disability, redundancy, retirement, a TUPE transfer or a change of control.

Will I pay capital gains tax when I sell SAYE shares?

You may. The base cost is only what you paid for the option and the exercise price, so the discount sits inside the gain. The annual exempt amount is £3,000 for individuals for the 2026 to 2027 tax year. A transfer into an ISA within 90 days of taking the shares out of the scheme avoids the charge, as does a direct transfer to a pension when the scheme ends.

What happens to my SAYE options if I leave?

It depends why. Paragraph 34(2) gives six months after the termination date for injury or disability, redundancy, retirement, a TUPE transfer or a change of control. For any other reason, options granted three years or less before you leave may not be exercised at all, and older options either lapse or run for six months depending on the rules. Your savings come back either way.

Can I stop paying into a sharesave contract?

Yes, in two ways. You can pause up to twelve monthly contributions, which pushes the maturity date back by the months taken, and a thirteenth missed payment counts as notice to stop permanently. Stopping permanently entitles you to full repayment, with interest if you take it after the first anniversary, and the scheme rules may make the option lapse.

Your next step: get the dates right

1. Write down four dates for every grant: the grant date, the bonus date, the end of the six month exercise window and the end of the 90 day ISA window. Most complaints come from a missed window, not a bad price.
2. Check your rules against paragraph 34(3) and record whether a leaver outside the listed reasons loses older options outright or keeps six months.
3. Confirm the service qualification in your rules is five years or less, and that nothing else in the plan discourages eligible people from joining.
4. Put notification in the compliance calendar: 6 July following the end of the tax year of the first grant, then 6 July each year for the return.
5. Tell leavers that the reason matters. Redundancy, retirement, injury, disability, a TUPE transfer and a change of control buy six months, so the leaver record has to be accurate.

For the policy frame around pay and reward decisions, read and download our compensation policy guide. The guide is free to read, and the PDF uses our short download form.

Want eligibility, service dates and leaver reasons to come out of one record rather than three spreadsheets? Book a New Dynamics demo and bring your current share plan calendar. You can also email contact@new-dynamics.com.