How to record bonus shares in employer's share investment scheme?

Alan Fleming's Avatar

Alan Fleming

21 Mar, 2021 09:47 AM

I'm in the UK. I'm in an Employer's share investment scheme, in which you purchase shares, bonus shares are allocated to you, and the whole lot are tax free if you hold them for a long enough period. To keep them separate I've put them into a separate investment account in Moneydance.

I can't seem to correctly record the bonus shares. I've been putting them in as a Buy, with no category or fee category then adjusting the amount paid to 0. But this also adjusts the price to 100 (which I can't then change), which throws off the Cost Basis.

How should I be recording these free shares?

Many thanks!

  1. 1 Posted by Stuart Beesley ... on 21 Mar, 2021 10:07 AM

    Stuart Beesley (Mr Toolbox)'s Avatar

    Hi, I've had to deal with this myself for many years. In fact many variations of what you state.. Can you please clarify your statement about 'the whole lot are free of tax' please as normally the tax man does find a way to penalise you?
    - I'm assuming this is not an (approved) share option grant - as you said you have to purchase shares? - do you really purchase the shares upfront, or just save money, and then have the option to buy at the end? - Is this an all employee share save scheme with a cash bonus that you can then invest in shares? - Do you hold the shares from day-1, receive dividends? Are the bonus shares conditional? - etc...

    Normally the 'bonus' will be treated either as interest prior to purchase of any shares at all, or the bonus shares will be considered income, that is taxed (even if behind the scenes where some are sold off).

    Of course, I may not be aware of other schemes..

    If you can clarify the details, I can guide the process I have used before..?

    (not support, just a fellow user)

  2. 2 Posted by Alan Fleming on 21 Mar, 2021 10:13 AM

    Alan Fleming's Avatar

    They're in a UK Share Incentive Plan (SIP). As I said, if they are held for long enough, they are tax free. I purchase the shares, they are held in the plan, bonus shares are granted by the company. Dividends are received and are turned into shares (and if necessary a small cash balance) and are also held in the plan, and become tax free after a period of time.

    However, the question isn't on the tax efficiency of the arrangement. I'm OK with that. Simply - how do I record the bonus shares granted so they don't throw off the Cost Basis?

  3. 3 Posted by Stuart Beesley ... on 21 Mar, 2021 10:37 AM

    Stuart Beesley (Mr Toolbox)'s Avatar

    Ok. My understanding of SIPs is that they do attract income tax. The reason I ask is that affects how we deal with in MD.

    As such I don’t believe they are ‘free’ (but I may be wrong of course), and the cost basis will be the price on the day they vest.

    I believe when they vest you will need to:
    - record cash into the account using Xfr in (category salary/share income). Ideally equal to the gross ‘value’. You should get a statement. - buy the bonus shares (gross value) using the market price on the day of vesting. Again as per statement - sell shares equal to tax/ni. And then Xfr the cash out to your tax/ni category - the new net balance of bonus shares held should be correct. CoSec normally does all this behind the scenes, so you have to mirror this too.

    (Not support, just a fellow user)

  4. 4 Posted by Alan Fleming on 21 Mar, 2021 10:52 AM

    Alan Fleming's Avatar

    It's not a SIPP. It's a SIP. They only attract tax if you withdraw them inside the taxable window, and mine are outside that. Also, they don't have the concept of vesting - they are in your account (at least, in my company's case) from Day 1. It's just the tax and NI treatment of them - on withdrawal - changes at various points in time.

    So to simplify things I want to record the bonus shares as if they were always a tax and NI-free grant. Because they now are. I've sold nothing, they're still in my account. And it's still the recording of the bonus shares I'm stuck with here. Can you help with this particular case?

  5. 5 Posted by Stuart Beesley ... on 21 Mar, 2021 10:59 AM

    Stuart Beesley (Mr Toolbox)'s Avatar

    (I meant SIP (phone spell checker))

    MD cannot hold shares with a cost basis of zero. I would say in the real world this is impossible too? They have to come from somewhere. If the CB were zero then when you sell you would trigger capital gains on the whole amount. I’m sure you would say this is not right too.

    The best options to follow this course you’ve requested are:
    1. Buy the shares for 0.01 each
    2. Perform a fake Xfr cash in from a dummy account that you ignore from reporting, and buy with that fake cash.

    For either option go to tools. Security. Edit price history and update the price for that date.

    (Not support, just a fellow user)

  6. 6 Posted by Alan Fleming on 21 Mar, 2021 11:09 AM

    Alan Fleming's Avatar

    OK - "buying" the bonus shares for 0.0002 ea. means the Cost Basis is damn near correct and the cash balance is out by less than a quid. I can live with that. Thank you!

  7. System closed this discussion on 20 Jun, 2021 11:10 AM.

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