Save As You Earn (SAYE), also known as Sharesave or the Savings-related Share Option Scheme, is an all-employee share option scheme that allows participating employees to purchase shares at a fixed price at a future date.
SAYE was introduced as the "Savings-related Share Option Scheme" in the Finance Act 1980, and came into effect on July 1 1981.
According to HMRC statistics, 520 UK companies operated SAYE schemes in 2015–16, increasing by 18 percent between 2013-14 and 2015-16.
Under Save As You Earn, the company offers employees an option price which can be up to 20 percent lower than the market value share price.
Employees who join the scheme can choose a contract period of 3 or 5 years to save a monthly amount from post-tax salary of between £5 and £500.
At the end of the contract period the savings are used to buy shares at the option price. If the share price has gone up during that time, the employee gains from that. This gain is taxed as capital rather than income. Each employee enjoys an annual exemption from Capital Gains Tax of £11,000 which means all increases up to this amount are tax-free.
If the share price has gone below the option price even with the discount, employees get all their savings back. Companies favour this scheme because it encourages a savings culture and it is a one-way bet for employees.