Full Tax Calculation

The benefits of the pension contribution using your workplace pension with salary exchange as the contributions structure are as follows.

Salary exchange example:

Table 1 – option profits paid as cash

Basic Rate taxpayer Higher Rate taxpayer
Option Holder profit 20,000 20,000
Income Tax 4,000 8,000
Employees National Insurance 2,400 400
Net profit to Option Holder 13,600 11,600

Table 2 – option profits exchanged for pension (over time*)

Basic Rate taxpayer Higher Rate taxpayer
Option Holder profit 20,000 20,000
Income Tax 0 0
Employees National Insurance 0 0
Employers NICs added to pension 2,760 2,760
Net profit to Option Holder 22,760 22,760

*Due to the size of the gain, a salary exchange increase would be over several months’ pay.

The tables demonstrate:

  • taking share profits as cash gives a Basic Rate taxpayer just 68% of the proceeds, or £680 for every £1,000 profit made.
  • taking share profits as cash gives a Higher Rate taxpayer just 58% of the proceeds, or £580 for every £1,000 profit made.
  • Exchanging share profits via regular monthly exchange for pension contributions results in £1,130.80 for every £1,000 profit made being invested in the Option Holder’s own pension pot.
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